The Official Reports

Markets took a moment to recalibrate today, following last night’s major dump on the story that Israel would not strike Iranian oil. Brent flat price crossed into the 73 handle we’ve been awaiting and closed the day at $73.73/bbl. Today had another very offered window as the Dated Donkey keeps getting smacked. BP, Glencore and Total offered down Ekofisk, while Shell and Glencore offered Forties, with Glencore offering a mid Nov Forties down to +46c over Dated. The physical diffs got spanked, from +$1.05 on Friday to +46c yesterday, and took another pounding today. The whole CFD curve slumped into contango, with balweek falling 54c from yesterday to -31c. Next week’s CFD fell 49c on the day too to -51c.

Traders live and die (financially) by the sword of their decisions. And it has been like this: hear War, buy! Hear Peace, sell! Hear economic news, hmm change that channel and let’s watch the War TV station. Here come the rumours… like Netanyahu promising not to hit Iran’s cities, nuclear plants, nor oil installations. (Can you trust him?) And the overbought market faints. Brent prices correct to the $73+ level. The drop sets the stage for the next uptick and just in time as Israel sort of denies any of the above. It is a ride with certain outcomes. The main players’ economies are facing headwinds and commodity prices reflect that from iron ore to oil. Geopolitics is red hot and any shooting will invite more shooting and this means, buy. But, but, but, the US does not want any shooting and neither do Europe’s main actors. They are financially too wobbly and the US elections means pressure on Israel not to shoot. Make your bets, people, but the outcomes are clear.

The Dated Donkey got whacked, and all the candy fell out. If you are short! The North Sea window was super offered with Glencore, BP and Totsa all trying to shift North Sea grades, and values got smoked! Incinerated really, and almost back to where the values should be if the market is long, which it is! This was very evident with the offer price of Forties. Glencore offered Forties down to +$0.75 over Dated, far below Gunvor’s bid at +$1.15 on Friday. Gunvor where are you when the Dated Donkey needs you? BP also piled in and was offering down a CIF Ekofisk to +$1.80 over Dated. Totsa didn’t miss out on the action and jumped in, offering down a FOB Ekofisk to Dated +$1.25, far lower than BPs offer for +$1.95 over Dated on Friday. But no one found any takers. According to traders, “the physical diffs got smoked”, falling to around 50c from over a buck on Friday. This week’s CFDs got demolished, falling from 47c before the window to just 7c after.

After losing steam on Friday, Dubai is starting to shed some of its physical premium. Trafigura and fellow sellers in the window are back in control. Totsa couldn’t grab enough partials to keep the physical premium above the $1.68/bbl average this month, shedding 18c since yesterday. BP, Phillips66, and Exxon were keen sellers, with Mitsui and Totsa on the buy side. Mitsui’s bidding did land them a cargo of Upper Zakum following convergence with Trafigura for the second convergence this month after Totsa netted another Upper Zakum from Exxon on Friday. The physical differentials are coming in below the current month average and also below September’s average. But a trader still considered them strong as the markets are heavily backwardated. ‘All this talk about a weak China and a softening economy is not doing much to the price,’ he said. ‘The more nothing happens, the more nothing happens,’ said another trader. ‘It was a soft start for dated as well, prices are soft but nothing much is happening,’ he concluded.

Nobody seems to want to hold any additional risk going into the weekend. Price action looked as flat as an ironing board throughout the day, oscillating safely within the $78/bbl range. ‘It was soft day since the morning,’ said a trader. ‘Some people were selling the end of October period, I think that’s where the action will be,’ the trader added. But otherwise the market was dull with minor up and downs, until Brent finally broke through the $79/bbl level shortly before 15:30 BST. It stalled just below the $79.50/bbl mark and closed at $79.14/bbl.

Dubai’s physical premium remained almost unchanged, just 1c up at $1.84. Dubai’s run out of steam after the mania of the last couple of weeks while everybody’s been running about like headless chickens on RedBull. This morning, paper has been “like watching paint dry” for traders who are, in some ways, glad for a hiatus in the carnage of recent weeks. In crude, in products, it doesn’t matter, everyone’s waiting with bated breath. We’ll see if that tranquillity lasts or if Middle Eastern belligerents decide to kick up a ruckus again. It’s a tense atmosphere as everyone waits for Israel’s next move.

All the traders and even we are kept waiting for Israel’s ‘decisive’ action in response to Iran’s missile bombardment. Words come easily, but the situation is difficult for Israel, countries in the region, US, Europe and everybody. Honour and pride demand a powerful reaction by Israel, but a non-emotional approach coupled with practicalities such as not stepping on American toes prior to the presidential election weigh heavily. We’ve learned to be patient following avowals of retribution and retaliation in the Middle East. In any case, the market just can’t get the idea out of its head, and this anxiety sent Brent back towards the $79/bbl mark.

What’s gonna happen? Where are they going to bomb? When? Suddenly all the traders and analysts turned journalists, asking all the questions that start with a W. Biden, Kamala and Netanyahu had a chat about what, who, where, when and even how, while rain drenched Florida ahead of the landfall. Needless to say, the US administration’s heart and mind was not into anything Iranian and Israeli, while the political risk of being accused of caring more for non-citizens could weigh heavily in the upcoming elections results. The US ‘affirmed its ironclad commitment to Israel’s security,’ but there wasn’t much beyond words saying ‘the president emphasized the need for a diplomatic arrangement.’ In other words, ‘don’t do anything silly that threatens the election.’ Israel’s defence minister Gallant said the response ‘would be lethal, precise and surprising,’ but we think short-term escalation is very unlikely. Yet the market lapped the words and prices went above $77/bbl. But the underlying sentiment is not overly bullish and subject to another downward correction.

Fears of a world conflagration rattle people like us as Israel seems to be inching towards a fateful decision. Netanyahu had a call with Biden and Kamala over the next steps, as we would say in business, after preventing his own defence minister from going to the US for the meeting. Prices bottomed out at around 15:20 BST at slightly over $75.00/bbl. And then the market turned bull. Here came out the guys ready to pounce back on the short and make some money, money, money. This afternoon, prices peaked at nearly $77.00/bbl, which in the big scheme of things is not too much. But this didn’t stop a trader from having gold glitter in his eyes, ‘It is going to $80/bbl,’ he said exuding confidence. War or peace and market forces will decide. If we use or abuse logic, we could say Israel has the plans and equipment to bomb and is waiting for the US green light. So, if they got it, tonight is the night for fireworks. Oh dear. And if they don’t, some de-escalation will start to happen. This is all our internal speculation, but we want to share it.

Flat price was indecisive and choppy since yesterday’s selloff. It doesn’t know whether to go up or down, as forecasters and analysts debate, ever more noisily, the conflicting geopolitical and macro forces and their effect on prices. Banks and analysts preach about risk or bad macros sparking suspicions of words supporting trading books or even OPEC or government narratives. Just in case the question arises, we, The Officials, are data driven but we acknowledge market sentiment. At the moment, macros are awful and point down, and geopolitics are nasty and point up. Any price rise further harms the macros. Over time the two will converge and we suspect prices will come down.

The Big Barf in progress. Poor longs, they got overextended and the bears made minced meat out of them. We were well into the $79 range with Brent flat price, then America woke up, said ‘that’s too high’ and sent the flat price tumbling. It got thrown down the staircase, bouncing down further into the 70s. From $79.41/bbl at 14:05 BST, it fell to under $78/bbl by 14:53 BST. Optimism over China’s monetary policies combined with fears that Israel’s retaliation could unhinge a wall of fire on the Strait of Hormuz and threaten the supply of over 20 million b/d day made for a very fetching bullish story. But traders always get overextended, don’t they? And then scepticism grew over Israel’s abilities and China’s rebound. And then prices fell, eliminating a portion of the risk premium. Brent touched $78/bbl and despite some temporary support, it took another massive dump all the way down to $77.00/bbl and has been hovering above this mark. More to come? Certainly; it broke through $77/bbl just before the window and closed at $77.08/bbl. Hope the longs brought their barf bags. It’ll be tricky to keep breakfast or dinner down in such turbulent conditions.

Watch out really for the possibility of the price balloon popping. Prices went up on China and thoughts of Israel bombing
oil installations and other dangerous things. And so far both look like a limpid wet noodle. Brent flat price has been
floating high, but the market is starting to feel heavy. Prices had been buoyed by fears of Middle Eastern conflict and
hopes of China’s “fiscal bazooka”. But China’s failure to turn up was confirmed by today’s National Development and
Reform Commission (NDRC) press conference. It also looks unlikely that Israel will disrupt Iran’s oil activities – if it wants
to keep getting presents from the US and UK. If further escalation fails to materialise, there may be a day of reckoning
coming for markets. If there’s no military action, expect bears to come out of hibernation and savage the beleaguered
bulls. It may already have begun; traders noted a pivot in the market yesterday. The window was still busy, though. Exxon
regained its position as the big seller. There was a sea of ‘Exxon sells’ and ‘Totsa buys’, while numerous others came in
for the party: Vatman and Gobin started flirting again, and Trafi sold sporadically, while several others joined in too.

He finally broke through. Brent flat price eventually ploughed through the $80/bbl resistance level at 16:21 BST after
testing the waters several times. It jumped suddenly to near $80.20/bbl. Likely many stops just above $80/bbl were
triggered and some longs probably took profit, which saw a slide back towards $80/bbl. A second wind took Brent
even further up shortly after the window, and it peaked at $80.84/bbl at 17:01 BST. Lennie believed the geopolitical
risk premium had run its course and markets were ready to snap back to reality with weak macros and refinery
maintenance. His short position isn’t looking healthy this evening and we imagine certain money managers are also
in the lifeboat alongside him – as we noted this morning, many remained positioned short facing a rising tide! And
the shorts are now underwater. The longs are ‘hoping’, and that is a sad word, something bad happens that creates a
short at the expense of lives. Regardless, some operational tightness is expected as Iranian loading ships reposition.

The market rose strongly in the London morning and Brent flat price almost touched $80.00/bbl, just a shade below, not quite ready to turn tail. Clearly traders were skittish of buying at too high of a level and then holding the bag in the face of weaker macros. Technical traders were licking their lips looking at indicators that said too many hedge funds are short. And a Middle Eastern producer was also pointing to the vacant Kharg Island, as the Iranians decide the area could get hot. Some disruption is expected to Iranian loadings as the prospect of aerial or even naval attacks permeates the region. The market rose from early morning peaking at $79.94/bbl at 11:18 BST. A couple of assaults on the $80 ceiling were held off before 12:00 BST. We thought we’d left the 80s in August but, like mullets, they’re coming back. Some traders balanced the thought of an attack versus a rapid correction of at least $5 if nothing happens. A quiet window saw Totsa and Mitsui keep on buying the odd partial, while the sellside was divided between Hengli, Trafi, Repsol and Phillips. No partials were traded in the last 20 seconds. Traders are showing their caution in the current context.

The EV situation doesn’t look great for anybody other than the Chinese. US Rivian has lowered its forecast for 2024 production by around 10,000 units due to a shortage of parts and lacklustre EV demand – see also major layoffs by Northvolt, Europe’s biggest battery maker, in late September. The company’s stock price has fallen by 46% this year, including a near 10% fall this week alone. And Europe just can’t keep up with the EV competition, so the EU is building its defences like a child at the beach building a desperate wall around a sandcastle as the tide comes in… still more effective building than the continent’s construction PMIs, with France’s 37.9 really taking the biscuit, the steepest contraction in the sector since 2015, excluding COVID. The Olympics mirage is gone and reality kicks in.