The Official Reports

Fear is gripping the market! Several more sharp spikes late yesterday and this morning sent Brent flat price beyond the $78/bbl ceiling, for the first time since 30 August, well above the low 70s we had become used to seeing throughout September. Dec $100 calls stood at 5c at the start of Sep and are now at 82c. Those who were in early will be rolling in it. Brent really outperformed Dubai again and the Brent/Dubai spread opened up further to 38c, a growth of 15c since yesterday. People are hands off on Dubai; according to our sources, physical tanker freight from the Arab Gulf into Asia fell $3.00 since news of the Iranian bombardment broke. We’re still waiting to see what happens next…

Skittish like a nervous horse. Markets are jumping and fretting at the slightest signal of supply disruption. And supply disruption could be gigantically bad if the never-matured teenagers prevail over the brains. The reports that Biden was having discussions with the Israelis regarding strikes against Iran’s oil facilities provoked a burst upwards in flat price. Within a minute, the price jumped from $75.98/bbl to $77.57/bbl! Remember the $100 call data we mentioned in this morning’s report? Well, open interest jumped again, while Brent flat price surpassed its 50-day moving average for the first time since July. Markets are incredibly jittery and sensitive to any headline coming out regarding the region. And $100 could be cheap if the Strait of Hormuz and the Strait of Lamentations (apt name ) become collateral damage in the fear boom boom. Please watch the latest ‘The Officials’ podcast where we go into the savoury details.

Fundamentals are finally asserting themselves. Dubai has been defying gravity for a couple of months as consumer demand softens in China and other parts of Asia, while some producers in the Middle East (wink wink) exceed their OPEC production ceilings. At the start of October, average Dubai physical premiums have tumbled from their high levels in September, down to an average of $1.52/bbl, so far this month. Having remained so elevated through last month, we expect Dubai OSPs to Asia to come out stronger, somewhere in the region of $0.80-$1.00 up. But Iran’s up first, publishing its own OSPs for November and it’s been chopping harder than a hyperactive lumberjack. The Islamic Republic reduced the Iranian Light crude by 65c/bbl to +$1.70/bbl, Heavy by 65c/bbl as well, down to +$0.15/bbl, Forozan Blend is cut by 40c/bbl. Pars and Soroosh grades were both cut further into the negatives: the former cut by $1/bbl to -$1.95/bbl, and the latter to -$2.95/bbl from -$2.75/bbl. This looks like a realisation that the once golden child of demand growth, China, is having a Golden Week in an otherwise messy year.

The market is on tenterhooks running up or down with the latest rumours. Everyone’s holding their breath after yesterday. Brent held firm in the mid-70s range throughout the day after yesterday’s Middle Eastern confrontations, on the expectation Israel would retaliate and fears the conflict could escalate even further, although Brent eventually loosened marginally to close at $73.83/bbl. This geopolitical risk premium now seems to be baked into the price and will likely remain until Israel fires and we get to reevaluate positions., Should direct war break out between Israel and Iran, some have posited that Iran’s key oil export hub, Kharg Island, could be attacked, which would disrupt around 90% of the country’s crude exports. This could also endanger the crucial Strait of Hormuz, through which exports from Iraq, Kuwait, Qatar, Bahrain etc sail… Essentially, oil flow would imperilled for everyone in the area. Strangely, most big guys The Officials’ met in Fujairah are strikingly resigned to a bear market. 60s, if not 50s, hung in the air. Annual growth may not be more than 600 kb/d and if Saudi Arabia pumps the volume 😵 then it is a good fight!

The direct missile attack by Iran against Israel yesterday afternoon sent markets haywire. Brent peaked at about $75.40/bbl, at around 18:05 BST yesterday. It cooled off later in the evening to below $74/bbl before building back up overnight and into this morning to close Asian trading at $75.10/bbl. Expect more to come if the conflict escalates further. The consensus seems to be that approximately 180 missiles were fired in the bombardment, but reports are conflicting. The IDF figure matches this number.

The Middle Eastern geopolitical risk premium isn’t entirely impotent anymore, it fires! Iran has shown its ability to send the world into a panic with mere whispers of missiles and bombardments on Israel. The US said it had deployed additional aircraft squadrons to the region, making the announcement almost simultaneous to the breaking of the rumour of Iran’s impending fury, which came shortly before 18:00 BST. We saw last week with the story of Saudi Arabia abandoning its supposed $100/bbl price target how headline-sensitive the markets are. ‘It is clearly the Americans releasing stuff,’ said a source, not entirely sold on talk that the world was coming to an end.

Brent teased us for ages, flirting with the $70/bbl floor, touching the $70.00/bbl at times, finally breaking through at 10:11 BST, only just touching $69.99/bbl for a few seconds before bouncing up back towards $70.50/bbl again, but the market direction is clearly set. It feels like Brent is clinging by its fingertips to the desperate $70. The market is stubborn, he’s repeatedly teasing the six handle but is treating us mean to keep us keen. By 11:20 BST it seemed to have propped itself up on a creaking wooden crutch and held at just over $71/bbl. Expect more to come, but the road down the edge of the cliff is never a smooth ride. After the dip and bounce were all said and done, the price had fallen from just over $71.70/bbl to below $71.20/bbl, and despite all this flat price action, the curve barely moved, so things look to have settled back down.

The window showed no transactions at all, hardly surprising given expiry. The stalemate left physical diffs unchanged
from yesterday at around 65c. While the big guns in the North Sea kept quiet, avoiding a reenactment of trench
warfare, where nobody wins. But the fun for past deeds continued, if you are an observer and not a participant of
course. This time it’s an ex-Gunvor employee (unnamed due to Swiss legal requirements), who is facing allegations
of corrupting officials in the Republic of Congo in exchange for oil contracts. Prosecutors allege that the defendant
was involved in payments worth more than $35 million in 2010-2011. Court proceedings began today in Swiss court.
Do note that Gunvor itself is not involved in the legal proceedings. That’s how it goes.

What a month September has been. We had rumours of OPEC releasing production, then deciding not to. Libya cut off production, now it’s bringing it back to market. We had Middle East flare ups, culminating in the killing of the Hezbollah’s leader, but radio silence from Iran. Weak Chinese demand remains a prominent fixture, with three Sinochem bankruptcies so far, but physical markets suggest there’s still strong demand there, or perhaps just SPR buying. Flat price was choppy, with APPEC’s realisation of poor fundamentals being met by bouts of short covering as money managers panicked about their record short positions. On the 17th, Brent fell to $68.98/bbl, the lowest in since December 2021. Dubai has been the outperformer, averaging 23.5c over Brent through September. Physical premiums in Dubai have remained very strong all month, averaging $2.03/bbl.

The Chinese financial bazooka arrested the crude oil slide into the nether 60s or lower, at least for the time being. The Chinese came out in force, fired their money showering guns several times to prime a recovery in their dented economy. So far it has worked. Stocks went crazy, going up nearly 15% in a week, Xi Jinping you are a generous man – please give us some money too! He gave money to his neighbours, with stocks in South Korea, Japan and as far afield as Singapore going up. The power of money! (even if it is funny printed stuff) In the real economy, the authorities lowered the investments thresholds to ensure citizens bought more houses. Iron ore went up as short hedge funds said, ‘oops, we made a mistake!’ They covered their shorts in a hurry. Some strange but explainable behaviour was also seen in Dubai, which soared above Brent. Hey, China is buying so buy anything going to Asia.

Wowza! China fires the bazookas!!! Dubai physical is pricing strong; premiums reached the highest since we began tracking at $2.43/bbl, up over 30c from yesterday. Dubai is powering up higher than Brent. Traders are highlighting many conflicting drivers: more Libyan crude supply is technically bearish for Brent and for the spread versus Dubai. Saudi rumours of more crude supply are bearish for Dubai but bullish for the spread. And then the Chinese come in, throwing everything including the kitchen sink to prop up the economy. The politburo won and any bear was crunched. Dubai continued to rise over Brent and the Dubai structure strengthened. Iron ore and the Asian stocks markets were on a run as well, happy times are back!

CFDs for this week have taken quite a hammering through since yesterday lunchtime. They have signalled a very belated realignment of physicals and futures as values have been quite apart for months. In the North Sea, PetroIneos continued its offering, after flipping sellside yesterday – see if you can spot where they jumped ship! Today PI was flogging a Brent for Oct 20-22 at Dated +70c, chopped down from +$1 yesterday. And hmm… wasn’t it PI who picked up
that Midland from Trafi at +$2.75 on Monday? How odd. We really wonder what happened there. Salmon isn’t the only
fishy smelling thing coming out of the North Sea or the Gulf Coast with the Midland thing. Exxon also offered a mid-Oct
Forties at 70c over Dated. Markets consolidated after this morning’s dump, rebounding around in a range throughout the
day before closing at $72.23/bbl. You get the feeling that markets are clinging on and trying their best to climb back up, but the slide downwards is inevitable. This is another rung down the ladder towards the 60s.

Scary times in oil. You have a mega Chinese stimulus, Fed rate cuts, hurricane oil shut ins, Chinese buying for the reserves and… the price tanks! Oil is very macro and is not responding to half measures. The ‘macro guys are dominating the trade,’ said a derivatives trader, noting that Dubai physical was pricing strong, but the flat price was giving way. And way it did, bottoming out at $70.78/bbl before having a temporary bounce to $72.44/bbl. ‘This market wants to test something starting with a six again,’ said another trader. But it was a perplexing time. Chinese stocks soared bringing up the Shanghai index up to 14% since the stimulus, other indexes were up over 10%, and HK’s Hang Seng was also up similarly. But onto more ‘real economy’ type. An iron ore trader said excitedly, ‘the ore has gone up ten percent, and also rebar!’ Some green shoots are there but they are not evident in oil.

Barfing Boris is at it again and flat price dumped again. There was a massively ‘constructive’ EIA’s inventory release,
but the market chucked the barrel down the stairs. The window closed at $74.67/bbl, relatively near the $75.25/bbl
high of the morning. But then Brent swooned, falling to a low of $73.07/bbl by 17:22. As we noted earlier, $72 was more likely than $77 and we are almost there. So, why did the market fall? Besides the awful macros, we had the Libya
effect. Markets apparently hate the prospect of peace and love and dumped oil as warrying factions in Libya were
finally together and agreeing on an interim central bank chief: Naji Issa. Can this (un)fortunate fellow keep the warring
factions in line? Only time will tell. But the reality is a bit simpler. All the factions need money and the only way to generate it is to sell oil. If they fight, they will still find a way to sell. Going long on Libya is a fool’s errand.

Today’s window was like a primary school sports day where everyone gets a medal or a cargo, and Upper Zakum at that; we got four convergences! That’s more than any other session so far this month. Longs and shorts clashed with equal enthusiasm with differentials only changing marginally. So much effort to keep the price contained one way or the other. Mitsui and North Petroleum were the buyers, as ever, and Exxon and Trafi kept selling. North Petroleum took home a convergence from both of these mighty ones, while Vitol and Mitsui each got one from Exxon. Traders were expecting a Murban cargo to be delivered as prices fell briefly on IFAD below the physical Dubai, but nothing of the sort happened. Murban recovered after that brief dizzy spell. By our counting that makes 7 convergences for Mitsui, which is streaking ahead of North Petroleum and Vitol, who have only got 3 so far. So, what’s Mitsui up to? Last month sources alleged that they were working with PetroChina on the buyside. This month we have not heard anything we could repeat. If all this oil is going to China, it wouldn’t be refined anytime soon. No quick recovery is expected as wealth has been destroyed by the plunge in property prices. A source shared a chart displaying the fall nearing 30% from the highs, but some Chinese sources say in some areas is as bad as 60%!!!