Headlines are crossing now about the Iran nuclear deal, saying they're at the point where political decisions are needed. That's another signal of progress and it highlights that a deal is possible.
But it will come down to the White House and what they're prepared to give up. Oil is at $88 and that gives Iran plenty of leverage. For me though, this is the easiest path forward for Biden.
The SPR release last month did very little. There's more capacity there but that would leave the US in a tough spot if there was a genuine oil supply shortage or a super spike. For me, that bullet has already been fired.
Next is Russia-Ukraine. The US and UK appear willing to sanction Russian energy exports if Putin's forces roll into Ukraine. This is a tough decision and I think Germany will block it. I think there's around $10 of geopolitical risk in oil right now and by giving into some of Putin's demand and de-escalating the situation, that could bring down oil prices. This might be tougher than backing down on Iran though.
In the medium-to-long term, the options are just as difficult. Biden vowed to end new drilling leases in his campaign and has done so far. One exception was an auction that was already scheduled for 80 million acres in the Gulf of Mexico. However that sale today was blocked by a US judge who said environmental assessments didn't sufficiently take climate change into account. Analysts believe they will appeal but how hard do they want to push? And what about larger projects like Keystone XL? That would be a dramatic climbdown.
Ultimately, there is inventory in the US to drill but shale producers have shown discipline so far and I believe they'll be slammed by inflation and worker shortages if they try to ramp. I don't think there's an appetite for shareholders for that kind of spending but prices close to $100 could change that.
So my base case is that there's an Iran deal but who knows what will happen with Russia.
All that said, maybe this is overthinking it. Look at this chart:
