[ihc-hide-content ihc_mb_type="show" ihc_mb_who="10,13,14,16,18,19" ihc_mb_template="1"] By Mark Rossano SUMMARY US Activity and Texas Power Outage ImpactsIntroduction to our NGL Breakdown Global Physical Market FlowsInflation and Asian Demand US Activity and Texas Power Outage Impacts U.S activity is going to be severely impacted by the recent storms and cold that has swept across the nation. It will impact Texas the most due to the sweeping power outages, freeze-offs, and equipment not prepared for this type of weather event. Texas has been hit by a deep freeze that continues to set records. This triggered a broad loss of power and freeze offs that has resulted in about 3.5M-4M barrels a day of loss production and 5M barrels a day of refinery throughput. About 2M barrels a day of refinery throughput has stated it will take over 4 weeks to get back up and running. The limitations on the demand side will create a backdrop of increasing crude storage, and bigger draws from refined products as power returns to the region. Unfortunately, full power won’t be restored until there is a broader thaw in the weather (which should begin today). The freezing temps will take Permian activity effectively to zero because the equipment isn’t prepared for this type of cold. Frac’ing requires a large amount of water and without heaters or tracers- all that water will completely freeze rendering activity impossible. The freeze-offs at the well head (producing wells) caused shutdowns in new natural gas production also limiting the available gas across the region. Treated natural gas has a maximum of 7 lbs of water per 1MMCF, so not enough to freeze, but at the wellhead, it is a very different story. This makes gas from storage more viable given its low water content. There is a lot of water that comes along with producing oil and natural gas, which has to be separated and treated—either at the well site or piped to a facility. To avoid damage, the operator will shut down the well in cold weather to protect the asset in what is commonly called a “freeze-off.” Some wells are starting to normalize, but we are at least 2 weeks away from a normalized level of activity given the rolling blackouts and cold weather. We will likely have spreads below 100 on a national level, but quickly bounce back over the course of the next several weeks. The slowdown will be temporary but will be swift given the weather impacts can’t be avoided. The places we expect the biggest impacts: Permian, Eagle Ford, and some reductions in Oklahoma and Haynesville. The severe cold has caused force majeures to be issued throughout the state on pipelines and LNG facilities, and Governor Greg Abbott restricted the sale of natural gas outside of Texas. These structural problems will also limit activity and movements of product across state lines with offtake hindered. Permian activity could range from 0-20 depending on how far over into the Delaware this hit as well as the Eagle Ford. The above frac spread count picks up some of the weather impacts, but the deep freeze set in beginning this past Monday- so this week will pick up the largest impacts. This will push the nation spread to about 76-80, but over the following week it will bounce back closer to 150 before continuing the grind back to 185 spreads. As we get into March, the Permian activity will accelerate and get closer to the 100-spread mark, Western Gulf back to 20, Bakken at 10, while most other locations hold constant at their 4-week rolling average. U.S. production will be as low as 7M barrels a day for the next several days, but we have already heard about some production coming back online- so the full impact won’t be felt for very long. It is fair to assume thought that 9M barrels a day will likely be the average over the previous 4 days and looking forward over the next 7 days or so. The activity push back to 185 spreads will be enough to keep U.S. production flat, and we have already had some companies discuss increases in production. Any increase in production will be muted, and we won’t see any real growth until we approach 230 spreads- which can put us back to the 11.3M barrels a day. Future U.S. exports of crude have come under pressure with a slowing of sales over the next few weeks given recent sales into Europe and Asia. We haven’t seen the impacts yet with the recent surge in the EIA being driven by weather impacts, and we will get more noise this week and next due to power outages and more weather impacts. Over the next 6 weeks though, we will see a dip in U.S. crude exports given the limited demand in the market and slowing demand in some key regions. Europe has eased as they managed their refined product portfolio with another wave of imports coming to the U.S. and West Africa. Asia is seeing pressure with slow Chinese demand and pressure into South Korea and Japan due to COVID19 cases and general slowness on the local economy level. Given the current supply problems, we have seen the spreads widen back out, but they will quickly adjust as Saudi Arabia has announced an adjustment to the voluntary production cut. KSA has been exporting about 500k barrels more M/M, and it was just a matter of time until they announced a reverse in some of the production cuts. The number of refining outages in the U.S. will now push our physical prices lower in order to incentivize an increase in exports. The prolonged issues over the next month will pull more product out of storage as well as into storage or the international market. The current spreads have widened with Brent vs LLS sitting at about $1.88 and Brent vs MEH at a about $2.57. This will help pull some of the additional crude into the market, but will also be a bigger competitor against Urals and other European grades. We have seen Urals trading at 10-month lows in North West Europe, and the widening spread in the U.S. will keep a lid on Europe pricing. Libya, Russia, and WAF have been competing more aggressively into the region, and the short term pricing dynamics out of the U.S. will increase that pressure. North Sea cargoes have seen strong bids over the last 10 days, but that has since normalized in the last 3 Platts window trading sessions. Many of the cargoes were bought by Chinese buyers, which will subside now that China has a lot of crude to digest on their coast. There has been some front month softness coming into the curve, but everything still remains fairly firm across the front end of the curve. The dip in front month crude will help carry some of the storage costs as we have a slug of refining capacity offline for about 4 or more weeks. Introduction to our NGL Breakdown We are also launching a product focusing more on NGLs and LNG. This is our first bigger NGL offering, and we will broaden it out over time. Let us know the type of information that would be helpful! BARREL OF NGL SOARS 53% ON CRUDE, PROPANE EXPORTS AND TEXAS FAILURE While natural gas liquids (NGL) production has surged in the U.S., surpassing 5.3 million barrels a day in late 2020, a recent recovery in crude oil prices has pushed the NGL barrel above $32, a far cry from an average of under $18 a barrel in 2020 and lows below $13 in March 2020. NGL prices have risen 53% from 4Q20 averages, versus a 40% rise in crude oil prices during that same span. Though we continue to see the U.S. NGL market as oversupplied with some processing limitations and bottlenecks at the main hub in Mt. Belvieu, Texas, the near-term rise in prices is not only attributable to the spike in crude, but also due to year-end stock draws, rising exports and recovering international demand. A significant rise in naphtha prices in Asia bodes well for a switch to more ethane cracking at petrochemical plants at home and abroad, a positive given ethane prices have seen a much more subdued rise versus the other components of the NGL barrel. Input economics for ethane are becoming more attractive, and though supply remains high, a boost in ethane demand could help provide a spark to stagnant prices and further support the recent rise in the NGL barrel. This week’s storms in Texas that drove the collapse of an unprepared power grid are likely to pressure short-term shale production and result in a disruption in propane exports that remained on the rise after a spike in 2H20. LINK TO CRUDE STICKS, BUT US SUPPLY, GLOBAL EXPORT MARKET DEVELOPING RAPIDLY Lower crude prices and an ongoing supply glut kept NGLs below $18 a barrel for most of 2020 and hopes of a recovery in crude, NGL exports and global ethylene and petrochemical demand drive hopes of a higher price environment that is materializing this year. Propane prices were bound to improve as exports recovered and the winter went into full swing, even though the recent price inflation is beyond what we expected given our views that crude has become overextended. The drop in NGL prices in 2020 was more pronounced than a jump in supply would have suggested as bottlenecks became more noticeable at the processing level. Raw, Y-grade, mixed-NGL output had been rising faster than Mt. Belvieu can handle, spurring intermittent ethane rejection, natural gas flaring and higher product storage. The incremental barrel still needs to be exported internationally and market access improved to support a prolonged improved pricing environment that can complete globally. NGL Prices (Cents per Gallon) Rise on LPG Demand, Export Recovery and Texas Storms Is Steam Running-Out of US NGL Production Ramp There are signs of slowing U.S. NGL production through above average inventory draws over the last several months. Winter usually results in higher demand, but draws in stocks have been greater than normal, even in the harsh weather we’ve seen recently, and could prove to be a result of flattening or even declining NGL production at U.S. shale plays that are lending less supply. NGL prices will remain linked to crude, though the ongoing development of the U.S. NGL market, including a revamped pipeline network and growing fractionation and export capabilities, should combine with ongoing demand growth globally to detach increasingly detach the two commodities going forward. NGL Exports Rebound, Trajectory Still Points Higher We expect global demand and domestic NGL exports to remain a strength in 2021, though NGL supply remains high and places a cap on prices at these high levels, with ethane the likely outlier. With weather remaining a factor, propane prices should remain seasonally firm and a switch to ethane use in the petrochemical sector, due to rising Naphtha prices in Asia, could provide support to the NGL barrel in the near term. Supply continues to remain the biggest question mark as the crude barrel continues to contain more NGL’s, meaning incremental barrels increasingly need a home overseas to keep markets balanced and prices from weakening. DOE Total US Propane/Propylene Exports DOUBLING IN PROPANE DRIVES NGL PRICE HIKE; TEXAS STORM PROVIDES FRESH BOOST Propane Spike Elongated by Texas Storms, Harsh Winter Propane prices continued to spike this week, inching closer to a 5-year high of 110 cents a gallon. Despite a continued rise in production, propane prices have more-than doubled the 2020 average of 46 cents as harsh winter conditions continue to plague the U.S., international demand rebounds fueling domestic exports, and inventory stocks return to more normal levels. Propane represents about 32% of the average U.S. NGL barrel and is highly seasonal, with peak consumption in the winter. Propane stocks have fallen off significantly since nearing a 5-year high in September, likely indicative of higher demand, falling shale production post-Covid 19 and a resumption in export growth. This week’s storms in Texas drove propane even higher, rising over 10% for the period while near-term shortage concerns mostly impact the ability to conduct export shipments. Propane Prices Skyrocket (Cents per Gallon), Drive Overall NGLs Higher Propane Markets Tighter Than They Appear With Exports in Need The cold weather this winter is certainly a factor in a recovery in propane prices, and exports peaking at the same time have provided an added boost. Average propane exports of over 1.3 million barrels a day have surpassed average domestic demand that we peg at just under 900,000 barrels a day. Stocks have been at 5-year highs for some time, but the average days of supply has been declining of late and fell to 27.2 days this week compared to 26.2 days at the same time last year. The five-year low is 17.5 days of supply. Exports are the lone hope to eat incremental propane barrels as domestic consumption levels seem to be flattening, given some volatility for harsher winter weather on an annual basis. U.S. propane production (including refinery production) surpassed 2 million barrels a day in late 2020 and imports from Canada average about 130,000 barrels a day. Domestic propane demand spikes to over 1.2 million barrels a day during peak winter conditions. PROPANE PRODUCTION (MBD) RISES WITH NEW SHALE WELLS After Spike in 2020, Propane Exports Look to Surpass 1.5 Mbd Cold winter weather, peak demand season and infrastructure hang-ups related to recent storms in Texas have eaten into propane and LPG export shipments in recent weeks. However, propane exports have surpassed 1.5 million barrels a day on several occasions since late December and appear primed to break records in the spring. Exports averaged over 1.25 million barrels a day in 2020, up 15% over 2019, and seem to be headed toward similar growth rates this year as cheap U.S. propane gains global market share, fractionation and export capabilities on the Gulf Coast improve and shale production delivers an increasing percentage of NGL output per barrel. Higher crude oil prices support U.S. shale production in the near-term, though we remain skeptical on the competitive landscape and the U.S. ability to compete should higher prices lead Saudi Arabia or Russia to flood markets with supply. PROPANE EXPORTS (MBD) Continue to Hit New Records NAPHTHA RISE COULD PROVIDE BOOST TO LAGGING ETHANE PRICES New steam cracker capacity and the restart of existing plants in Asia has provided a bullish background for naphtha in 2021 that has driven prices higher since November. Naphtha prices in Asia have returned to pre-2020 levels and a further jump could drive higher U.S. ethane demand as it becomes a cheaper feedstock for petrochemical plants. With Asian markets generally short naphtha, U.S. shipments are counted on to meet demand. While higher naphtha exports from the U.S. are already occurring, a switch to ethane could drive NGL demand higher and provide a destination for rising U.S. production, while helping to ward off flaring and rejection. Asia Spot Naphtha Prices ($ per Metric Tonne) Lackadaisical Ethane Prices Could See Boost as Naphtha Spikes Though propane and other LPG’s have risen sharply, a rise in ethane prices has been more moderate. Ethane recently reached 27 cents a gallon this week, up from an average of 21.5 cents in 4Q and 19 cents for all of 2020. Prices are trending similar to naphtha, though there tends to be a lag, which to us indicates potential upside in ethane prices that could prove to come rapidly. This is further supported by a tendency for petrochemical plants to switch over to ethane cracking once naphtha prices hit a certain level. As ethane and propane prices improve, NGL fractionation spreads have widened as well. An indicator on NGL processing margins, higher frac spreads are providing for a better environment for natural gas gathering and processing companies. Separately, the abundance of NGL production and new pipeline capacity that all leads to Mt. Belvieu on the Gulf Coast of Texas, has increased the need for new fractionation plants. The buildout for these facilities is one of the last to remain viable in the midstream sector, and while some projects were put on the shelf after the Covid related slowdown, new capacity is being added. Still, we view the need for new frac plants as a major priority for the midstream sector in order to alleviate remaining gluts throughout the three-stream system. Mt. Belvieu Ethane Prices (Cents per Gallon) Look for Jolt Global Physical Market Flows The bifurcation in the market continues with future (paper) crude markets holding their upward trend while the underlying physical market weakens globally. I have been harping on the difference between production and exports, because you can cut production while still maintaining your export flows by pulling down storage levels. Here is just a sample of the underlying data across the physical market: Crude exports from Saudi Arabia rose during the first half of February, despite the kingdom pledging to reduce output below its OPEC+ quota, tanker-tracking data compiled by Bloomberg show.Observed flows were at 6.5m b/d during the first 14 days of this month; that compares with 6m b/d for all of JanuaryIraq’s oil sales jumped in 1H Feb. in a sign that the country’s target to meet its OPEC+ production quota remains elusive.Exports rose to 3.435m b/d in the first 14 days of February, up 4% from a revised total of 3.302 m b/d for the full month of January, according to tanker-tracking and port-agent data compiled by Bloomberg North Sea prices have started to normalize after being a bright spot over the last 14 or so days. Glencore, Totsa reduced their bidding prices for Forties and Ekofisk on Platts window. Bids still remain strong, but have started to fall over the last two sessions. The increased availability of other grades will keep a lid on some of the physical pricing in the market. Glencore bid Forties for March 1-12 at 60c/bbl more than Dated Brent, FOB: trader monitoring Platts windowCompares with +70c for its bid on ThursdayAlso bid Ekofisk at +80c for March 5-7 or 17-19, FOB, vs +85c yesterdayTotsa bid Forties for March 5-7 at +65c, FOB, vs +80c yesterdayVitol offered Forties at +95c for March 3-9, or +$1.20 for March 10-16, CIF Rotterdam Shell offered Ekofisk at +90c for March 9-11, FOB Libya’s observed crude and condensate exports rose 14% in the first half of February, even though no cargoes were loaded from Hariga and Bouri ports. Hariga was reopened on Feb. 11 after guards ended a monthlong strike, meaning exports can resume.Libya loaded 1.16m b/d in the first two weeks of February, up from a rate of 1.02m b/d in January, according to tanker-tracking data monitored by BloombergExports via Es Sider rose 64% in the first two weeks of February vs all of January, to the highest daily flow rate in at least 4 yearsJanuary flows via Es Sider had been reduced by closure of a pipeline to the port Libya was faced with a bunch of port closures due to strikes at different ports, but that has since been rectified allowing for a normalization of activity into the broader market. Urals into northwest Europe are trading at the lowest prices in 10 months on the Platts window: “Unipec bought 100k tons of Urals from Glencore for Feb. 22-26 delivery at $1.75/bbl less than Dated Brent, CIF Rotterdam: trader monitoring Platts window. Total bought same amount of Urals from Litasco for same period at -$1.85/bbl. Traded prices were lowest since mid-April, compared with prices for previous deals at -$1.10 and -$1.45 on Feb. 9.” Litasco offered 100k tons of Urals for March 5-9 delivery at $1.75/bbl less than Dated Brent, CIF Rotterdam: trader monitoring Platts window. Urals last traded on Feb. 17 at -$2 for Feb. 27-March 3 delivery. Djeno is a crude originating from the Congo, and is a key staple for Chinese refiners. So far- they haven’t sold a single March cargo with all 7 still available, which is complicated by the April loading program coming out next week. This is married with the difficulty that West Africa (Angola/Nigeria) is competing to push cargoes into the market resulting in discounts below OSPs (official selling prices). “Angola has yet to sell 10-11 of the 37 crude cargoes it plans to export in March: traders: Drops from 14-15 on Feb. 5. Sales are a bit slower than usual given April’s preliminary loading schedule is expected to emerge next week: traders.” On the other side, North Sea has seen strong purchases for spot cargoes: “There has been a burst of activity in the window in recent weeks. Both swaps and futures contracts tied to the value of North Sea crude have surged to their highest levels in about a year as the buying interest has grown.” There were some structural issues with a Forties pipe that was down, but is now operational again allowing for a bit more flexibility. We have also seen some big players get more active in the physical vs paper market in order to lock-in some huge gains between the two given the wide disconnect in the paper vs physical markets. The loading schedule for February remains elevated with additional capacity from Libya, Nigeria, and some other regions offsetting small declines from other nations. Total loading schedules are moving back into the “normal” range that we have seen over the last decade from the listed countries as Russia, Norway, and Libya come back to their normal levels of exports. The question comes down to what is the actual spare capacity that lives in the market and able to come back to market. According to Bloomberg, there is about 9M barrels a day of spare capacity in OPEC and that climbs to north of 10M barrels a day once we roll in the OPEC+ nations. We know that the spare capacity is closer to 5M barrels a day within a short period of time, as investments and exploration continue in UAE, Iraq, Norway, Kuwait, and Saudi Arabia just to name a few based on announced finds and production uplift. Libya still remains a place of potential investment given the reserves and quality of rock in the region. It just takes this little thing called “political stability,” which has remained fleeting over the last 10 years. Iran remains another uncertainty, which I will discuss later on in the report. We have seen growth in the exporting market back to normalized levels from 2018, which will limit some of the draw downs in the global crude markets. As Saudi has reduced their flow by 1M barrels a day, it has allowed the other countries listed below to come back to typical levels we have seen over the last 10 years. As KSA brings back more barrels, it will be important to watch how Saudi barrels make their way back into the market. Even though the group has cut about 7M barrels a day in production, these nations are back to normal export levels. A large part of that is driven by the return of Libya that is exempt from the current OPEC+ production agreement. The question shifts to how much spare capacity is available, and at the current price deck- how much will return? Russia was very adamant about KSA not cutting the 1M barrels a day, and only 17 days into the cut (and increasing exports)- they are reversing course. The problem is- it has already pushed prices higher allowing for hedging and other protective measures to keep U.S. production stable. Russia has already seen pain in Europe from the U.S. again, while they still see stronger pricing into Asia with ESPO flows. The Neutral Zone has also been coming back in a steady stage, which is not included in the OPEC+ agreement. The limited production in the OPEC+ agreement is being generated largely by the below countries in the Middle East. Saudi Arabia voluntarily cutting 1M barrels a day of production for Feb and Mar, so far hasn’t shown up in the export data as they have kept exports stable even with a production cut. Additional crude availability from WAF/ Libya/ Russia/ ME will hurt total flows from the U.S. into all end markets. The U.S. competes with Libya/Urals into Europe, which is another reason Russia didn’t want Saudi Arabia to provide a 1M barrel a day voluntary cut. The limited demand for crude in Europe with an abundant number of available sources is hurting net pricing- especially for Russia. The last time Urals traded like this was Jan-Feb of last year, and we all know what Mar-April looked like as OPEC+ pushed prices lower. The problem this time around (which Russia pointed out) was the rally in front month WTI Cushing prices would provide the ability for U.S. producers to hedge. The strong rally in front months has opened a more hedging capacity well over $50. The curve shows WTI Cushing prices now trading over $50 through Dec 2023, which offers up the ability to hedge above $55 throughout 2021. U.S. E&Ps will get more aggressive hedging downside risk and will utilizes different structures in order to protect against downside risk and protect cash flow. Many balance sheets were assuming anything from $40 to $50 crude, so now the spike in pricing offers an opportunity to lock in elevated prices. U.S. production is also getting an uplift from the NGL (natural gas liquid) barrel with cold weather and surges in international demand. The world demand levels described by OPEC’s Monthly Outlook for 2020 came in at about 90M barrels a day as pressure mounted from COVID restrictions that have continued into 2021. OPEC has reduced some of their demand forecasts for 2021 have started to be reduced as China’s Lunar New Year, rolling lockdowns, and other restrictions to activity persist in the market. While the paper markets remain robust, there has been persistent weakness at the refining level as margins have compressed with feedstock prices higher and pressure on end market demands limiting potential price increases. The demand backdrop looks problematic as activity along mobility and high frequency data points flat line, and still struggle to reach November levels. The storage levels around the world are showing builds across light and middle distillate as global demand remains capped. Even after a year, the world economy is operating at about 80% (give or take) capacity. Inflation and Asian Demand The bullish side of that argument is- we still have 20%-30% of upside of activity, but I am a bit more nuanced with that view. There has been a big shift in the way we consume, and for those that know me well- I have been bearish the global economy starting in July of 2019. There were cracks forming around the world, and the Sept US REPO spike was a tell-tale sign of things to come. Now we are sitting with a record amount of unemployment, inflation spiking, and mixed economic data points. This all comes after trillions have been dumped into the market by governments and central banks, but yet we have only been able to crawl back to a ceiling. Maybe the vaccination is the piece that pushes us over the edge, but for years we have seen wage compression driving a bigger wage gap and inequality. The bottom 80%-90% has seen pain increase as savings dwindled, limited social mobility, and unless you had hard assets or stocks… you haven’t kept up. Now on the otherside of this- we have inflation, commodity price spiking, and fleeting jobs. Companies are also facing a saturated employee pool, which allows for a reduction in paid wages as well. Economic compression remains at the forefront with overnight rates becoming a bigger problem. The yield curve keeps shifting higher as inflation is priced in with PMI reporting the following: “A concern is that firms’ costs have surged higher, driving selling prices for goods and services up at a survey record pace and hinting at a further increase in inflation,’’ Williamson said. The Fed can talk all they want about “tempered” inflation, but the underlying problem is markets see a different story. Is there logistical issues and other supply chain impacts- absolutely! But we have been living in a unique world where inflation has been undercounted, and now with the “Deflationary” components of CPI finally catching up- there is no where to hide. Rates are going higher with Germany, Japan, China, and the U.S. seeing the squeeze to the up side. China Lunar New Year travel came in well below expectations: “From Feb. 11 to Feb. 17, a total of 98.42 million passenger trips were made, plunging by 76.8 percent compared with that during the Spring Festival holiday in 2019, according to the State Council joint prevention and control mechanism against COVID-19. The figure was also 34.8 percent less than the number in the 2020 Spring Festival holiday, official data showed. The flow of highway traffic amounted to 219.65 million vehicles, down by 20.27 percent during the same holiday in 2019, but up by 118.26 percent compared with that in the 2020 Spring Festival holiday. China is expected to see 21.44 million passenger trips implemented Thursday, with the railway sector operating 6.7 million trips and the civil aviation sector 960,000 trips.”[1] The big drop in activity will put pressure on the underlying economy as net travel was down limiting spending. Trips were down 34.8% below 2020, which was believed to be about 10% above 2020. The driving data is a bit misleading as activity took place, but was limited to local movements as public transport travel was severely limited. China has been the growth story since November, but now they had a very muted Lunar New Year with a surge of oil floating in their direction. As these boats show up, it will keep crude offshore in floating storage that will keep these numbers elevated. Asian Floating Storage India has also been a bright spot in the oil markets and opposed to China- that story will remain strong over the next few months. Inflation remains a concern when it comes to central bank activity that could happen in the area. But- even as monetary policy takes a pause- Modi’s government has increased total fiscal stimulus. This in also increasing the deficit, which is also putting a near term pause on monetary movements as some inflation indicators are heating up again. The increase in the budget deficit also limits Modi’s ability to reduce taxes in diesel and gasoline- so even as prices rise- it will be difficult to cut tax revenue. This would just increase the deficit and put pressure on the rupee. The below chart highlights the range of inflation that will be tolerated, and while it has normalized to the target rate- some leading indicators are showing a pickup in inflation. This will be closely monitored because it will have bigger ramifications as India tries to ramp back up. The Iranian Nuclear Deal is back in the headlines with both Iran and Biden’s Administration making comments on what would be required to lift sanctions and re-enter the JCPOA. Iran has been exporting about 2.1M-2.4M barrels a day with their declared production sitting at about 2.07M barrels a day. Iran has about 80M barrels of onshore storage that is about 50%-60% full at the moment, and could quickly be pushed into the market if the deal is signed. Iran was production at about 3.83M barrels a day before the Trump Administration left the nuclear agreement. Iran has been bringing back some additional capacity since the end of 2020, with more STS (Ship to ship transfers) happening off the coast of Malaysia. “U.S. Secretary of State Antony Blinken said Washington was ready to explore the possibility of reopening nuclear talks with Iran, even as the U.S. readies military contingency plans in the region. The head of U.S. Central Command said the military is exploring the use of bases, including those in Saudi Arabia, that can operate during “periods of heightened risk.” Defense Secretary Lloyd Austin, who condemned recent attacks on Saudi Arabia by Iran-backed Houthi rebels, also discussed bilateral ties and defense cooperation with Saudi Crown Prince Mohammed bin Salman.” Iran has stated that the U.S. must first return to the JCOPA deal and lift sanctions before any talks can begin between both parties. “Earlier Foreign Ministry spokesman Saeed Khatibzadeh said the “key sequence” for engagements between the two nations was commitment, action and then a meeting.” “The United States would accept an invitation from the European Union High Representative to attend a meeting of the P5+1 and Iran to discuss a diplomatic way forward on Iran’s nuclear program,” State Department spokesman Ned Price said in a statement. The P5+1 refers to the participants in the nuclear deal with Iran: China, Russia, France, the U.K., the U.S and Germany.” In the meantime, Iranian assets in Iraq have launched several attacks on NATO and Iraq assets resulting in the injuries and death of several contractors. I still believe that this is the Biden administration testing the waters to see what kind of response and reaction comes from the Iranian side. The response shouldn’t really surprise anyone, and I think the U.S. will wait to see how the elections go at the end of the year. The U.S. and its allies in the region have been fairly successful in stressing the balance sheet of the Iranian regime. It would be a mistake to relent now as public support within Iran remains in favor of the west, and the regime is losing more control of those internally. Obviously, predicting a regime change is near impossible, but the locals are getting more brazen in their attacks against secured assets in the country- most recent being the head nuclear scientist. [1] http://www.xinhuanet.com/english/2021-02/18/c_139750790.htm?bsh_bid=5588739564 [/ihc-hide-content]