The Official Reports

Today’s window was quieter than yesterday’s head scratcher, although there were still some pretty pricey cargoes up for grabs. Mitsui offered a Forties CIF for Oct 16-20 at Dated +$2.10. Conoco lowered its offer of an Ekofisk for Oct 17-22 to +$2.20 over Dated, down from its Oct 19-21 offer at +$2.55 yesterday. Everyone’s being all strait laced today after last night’s debacle.

For evidence of how dire the global construction outlook seems, look at how pessimistic JCB is in its annual earnings report despite bumper profits. JCB reported a £6.5 ($8.65) billion turnover, with a pre-tax profit of £805.8 million. This constitutes a gain in market share and a 14% y/y increase in sales, but the company is very gloomy about the remainder of the year as economic activity is contracting fast: JCB is concerned by “challenging” conditions in its European market that will make replicating this annual success rather tricky. At least the diggers have other uses. The UK’s contracting housebuilding sector is a danger to company profits, while Germany’s economic decline is potentially an existential threat.

A busy and rather messy window. We like it. Traders and majors pushing and pulling Dubai. Sometimes value was even given away, with sales or purchases done up to 10c away from the last transaction and without offering or bidding incrementally. Our assessment filtered out the naughtiness and we closed Dubai at $74.85/bbl. Trafi installed itself firmly on the sellside again, alongside the month’s regular player: Exxon. They have a firm view on the market being long and refining being tired. We don’t disagree with the fundamentals, but today we felt very bullish on flat price after the Chinese did their thing. Markets do change, even if temporarily. Mitsui and North Petroleum remained the main buyers, feasting on almost all Exxon and Trafi had to offer. Gunvor was left picking up the crumbs that fell from the table with a partial from Trafi. Mitsui netted yet another cargo, an Upper Zakum, from Trafi this time. Aggressive selling looks to be paying off, as physical premiums fall to $1.81/bbl, the lowest so far in September.

Hmm, odd way of trading, very odd indeed. What are Trafigura and PetroIneos up to? One may ask very innocently. Let’s look at the data. Only Wednesday last week, this week’s Dated Brent implied differentials were trading at around 85c. But one may also say that diff was merely an expectation that must be validated by reality. But then reality can be distorted, can’t it? You decide. Trafigura opened the physical North Sea window – a misnomer but never mind – with your favourite grade that solves all Dated problems, or so we heard, Midland. Trafigura offered an Oct 18-22 Midland at Dated +$2.80. A smidge high, we would say. The early offer time of 15:44 BST piqued our curiosity. The offer was subsequently lowered to a premium of $2.75/bbl. PetroIneos obliged to such an attractive high offer and bought the cargo! This high number blew our socks off and we think everybody else’s too.

Things in China are bad, as macro signals remain negative with youth unemployment up to 18.8%, according to the most recent data, and the mighty party just engineered a cut in interest rates. Europe is not much better, with Germany unsurprisingly contracting in the industrial sector, as the economics minister is wondering how to bail out carmakers.

The oil markets felt squishy, like a punch-drunk boxer in the final round of a losing bout. Hmm, the analogy reminds me of a former presidential candidate, but we move on. Crude’s got that Friday feeling. Sadly, it’s a dreary, heavy feeling going into the weekend being glad that the week’s over time to rest and see if the recent gains can be consolidated. Prices have done well since Power Powell waved his magic wand. But since Q2 this year, in US sessions crude has only had two Fridays that were up by more than 1%, so there really is the sense it’s just making it to the weekend rather than thriving at its day job.

Well, it looks like Dubai couldn’t hold on much longer after all. Physical premiums shed 42c in just 1 day. And Dubai’s premium over November Brent futures flipped back into negativity. Brent futures are back in top spot, closing 21c above Dubai partials. Dubai front spreads dumped 33c from $1.44 yesterday to $1.11 today. Despite this, Dubai’s structure is still strongly backwardated, with strength down the curve. But to us, as Powell likes to say, “the direction of travel is clear”.

High level, never bet against the Fed, vibes traders got it right. Back to more parochial but important things…Dubai has managed to lead the pack in recent sessions, after struggling through July and August. But are we seeing that start to slow? Dubai’s premium over November Brent futures eased slightly to 41c, down 11c on the day but still comfortably within its elevated September range. On a premium basis, Dubai is still very much in fashion; physical premiums rose to $2.30/bbl! Is Dubai starting to get too expensive? Not for Mitsui and Northern Petroleum by the looks of things.

High level, never bet against the Fed, vibes traders got it right. Back to more parochial but important things…Dubai has managed to lead the pack in recent sessions, after struggling through July and August. But are we seeing that start to slow? Dubai’s premium over November Brent futures eased slightly to 41c, down 11c on the day but still comfortably within its elevated September range. On a premium basis, Dubai is still very much in fashion; physical premiums rose to $2.30/bbl! Is Dubai starting to get too expensive? Not for Mitsui and Northern Petroleum by the looks of things.

Today is the day. It’s D-Day for the Fed and our resident macroeconomic enthusiast has been counting down the days like a nine-year-old excitedly opening his advent calendar in the lead up to Christmas. Hey it is money, real money. We all want some of it even if it’s fake recently printed paper money. The 25-50 debate will finally be settled when Power Powell unleashes the full force of the US economy, unshackling it from its restraints. The world needs decisive action from the big dawg. The market seemed nervous today, hesitant to jump for joy at a big cut, as though it was scared to be let down. Yesterday it seemed it was forecasting a nice cut but today the behaviour was desultory. Continuing fall out front the pager blow outs has not impacted the market even though the mighty Houthis have now threatened any Taiwanese ship in addition to those linked to Israel. The world keeps getting gummed up due to military and economic fights. Time to sit down folks and recognize no side can truly win.

Physical Dubai markets are holding strong, with Dubai partials pricing 52c over Brent, and today they set yet another record for the highest physical premium we have tracked since starting the Officials at the beginning of June at $2.26/bbl! These are expensive barrels, and with demand so rock bottom in Asia that some refineries are filing for bankruptcy, we ask what is driving this strength in Asia. Reliance was more active on the sell side in the window today, alongside Exxon. It smells like more run cuts in Asia to us, but who knows? The regulars were on the buyside, with Mets hungry as ever, netting themselves two convergences. One Al Shaheen from Exxon, and another Upper Zakum from Reliance. It’s like last orders at the pub, with that one drinker keeping on about ‘just one more’ to the bartender. NPI and Vitol also picked up a couple partials.

All eyes are on tomorrow’s FED decision on the 25 or 50 bps interest rate cut. In the meantime, iPhone warriors fight in all economic arenas about the size while having zero influence on the outcome. In other words, it is all words and we’re all talkers. But what does 25 or 50 bps mean for markets? If the Fed cuts the full 50 it’d be happy times as the immediate effect is lowering of business and mortgage cost. One could argue this is not bullish, as the FED had to go big. But those are fine details for the bearded pipe smokers. The average Joe will love Powell.

What is Mitsui, big buyers of Dubai partials, up to with all its oil, given Chinese teapots are dropping like flies as margins get crushed? An exaggeration we know but two teapots are down. The situation is awful and we are reminded by another data point. Vietnam’s exports of cement into China are down 90% as construction is flat on its back. Cement is very highly energy intensive and so is construction itself. You know where we are going with this…diesel is
impacted very negatively. The front month Arab Gulf 321 crack is creaking under the strain, down to $5.66/bbl from its February peak at $19.35/bbl! Dubai physical premiums continue to climb and are at the highest since ‘The Officials’ began tracking the data. Premiums are at $2.12, up by almost 10c from yesterday.

The upper 60s came and went, with the initial negative narrative being overtaken by ‘it is not so bad and we are going to:’ 75, 77, 80 or even more. Take your pick. But the macros have not changed and, if anything, they are a wee bit worse and everything works at the margin. So be careful. In flat price the story has been pretty directionless to stronger. A random walk along the flat price chart saw a slow morning, before picking up steam into the early hours of US trading. According to traders, Exxon has been selling alongside Chevron, a Team America defector, and shortly before the window they may have got their way, with flat price and spreads both easing off. As flat price reached the day’s peak at $73.31/bbl, Brent front spreads peaked at 66c just after 15:00 BST, before shedding 8c to close the window at 58c. Further down the curve, little changed. But the short end remains strong. One trader said, “we are no way oversold or pricing below where we ought to be”, even despite the historic short positioning in managed money. But for every short, there is a long, so…

It’s the positioning in Brent contracts that is really intriguing this morning. Managed money net length in Brent futures contracts, according to ICE COT, has turned negative, marking a historic shift in sentiment on the long/short seesaw. For the first time since the data began being collated, some of the shorts are outweighing the longs. The composition is clear with -33.7 mb net short for the week ending 10 Sep. Shorts look a bit saturated…

Flat price has largely shrugged off APPEC’s bearish consensus; the market was overly short, really. Flat price and spreads all gained through the backend of the week and traders reported that next week, they’re “not really seeing any selling”, but they followed up that the two subsequent weeks have lots of selling. In short, the market is backwardating. Let’s not understate this: implied diffs are $1.30 for next week, little changed from where we are now, but the week after, they’re pricing 80c!! The market is teetering on the clifftops, Kennie had better have his parachute. There’s still plenty of trading time, so who knows? Nobody…