CHICAGO, Ill. (RFD News) — Geopolitical tensions remain one of the biggest risks to energy markets.
Michael Castle, an economist with StoneX, said the stakes remain high, warning that Iran’s Revolutionary Guard is complicating the situation.
“It sounds like the IRG is in full control of the negotiations. They are the hardliners. They are the ones who are not interested in making a deal, right? They know the pain this is inflicting on the global economy. They know the light that this paints the U.S. in. They feel like they have some leverage from this. And they know that if a deal is made, right, their existence may be in question. And the way that they run the country, the control they have within the country could be in question. So I don’t see them really being willing to, you know, make a deal very soon.”
Iran’s Revolutionary Guard is part of the country’s military but reports directly to the country’s supreme leader.
Castle also said developments along the Red Sea remain an area to watch, noting that unrest in parts of Yemen could further complicate efforts to resolve the situation in Iran.
While tensions remain elevated, diesel prices have eased somewhat from the highs seen in April, though they remain above year-ago levels.
Patrick De Haan, a petroleum analyst with GasBuddy, said several factors are helping keep oil prices in check.
“We do see some oil still flowing through, or I should say around, the Strait of Hormuz. The Saudi pipeline, the East-West Pipeline, with a capacity of seven million barrels a day, has been fully loaded since late March. Saudi’s longstanding contingency plan for keeping oil flowing has been to utilize its backup pipeline, which redirects oil around the strait into the Red Sea port of Yanbu. That is likely keeping downward, or at least some, pressure on oil from rising more significantly.”
Right now, De Haan said one of his biggest concerns surrounds the Strategic Petroleum Reserve, which is seeing an 8 million to 10 million barrel draw each week.
“That should be concerning because at the end of these releases, by later this year, potentially late summer, the inventory drawdowns are going to be over, and the U.S. SPR will be far less filled. That is likely going to be somewhat of a concern moving forward because it will put the U.S. in a more vulnerable position if there is another disruption or development like the Strait of Hormuz situation.”
According to De Haan, declining reserve levels could become more significant if global oil markets face another disruption.
