The Officials

The number looks big – at 51 mil bbl the Saudi allocation to China for October is the same as the August allocation and 8 mil bbl up from September – so some were quick to jump to bearish conclusions! But the excess supply expected to be exported as the summer burn fades into the market’s memory. Any has been sucked up by China and there is loads of demand out there in Asia, so there shouldn’t be any overhang. The Saudis need to sell and the Chinese are happy to buy!

Wow! We are hearing from trading sources 51 million barrels of Saudi allocations to China for October loading folks! If the physical premium is down and the Saudi OSPs are down, allocations rise, who would have thought? Brent slid back from its highs of yesterday afternoon through the Asian session, grinding downwards towards the low-$67 range. Although flat price has recovered from its dip towards $65, against Dubai, it’s still getting hammered! The October Brent/Dubai spread has tumbled to near -$1.70 – it was only -58c on 4 September. The sweet vs sour game is still where the party’s at, even as the parties in Singapore wind down.

The orange man hits yet again! Trump’s “Here we go!” response to the Russia-Poland drone situation overwhelmed the bearish sense the EIA inventory build report gave the market. Flat price jumped almost 50c/bbl within a minute to $67.50/bbl, even the prompt spread gained on the news to climb to 35c by London close. But the night is young, folks! Geopolitical nerves are jangling again and APPEC attendees look worried. The Israeli attack on Doha has ostracised the US even further, as many at APPEC say, “We can’t trust America.”

‘God protect me from my friends, because my enemies I can handle,’ said an oil company as a comment on the Israeli attack on Doha, and supporting role the US is widely believed to have had. Questions were also emerging over what territory the Israeli planes flew over. “Was it Saudi territory?” Asked a senior shipping executive. International law and diplomacy are dead in a ditch! No energy infrastructure was hit, but who knows what’s next on the hit list? By the way, the Ruwais Refinery 2 (417 kb/d) should be back to full operation today after yesterday’s precautionary shutdown.

Dated dive bombed, this is the lowest physical differential since The Officials began Dated Brent assessments!! Brent finally cleared, with Gunvor lifting Mercuria’s discounted CIF 30 Sep-4 Oct cargo at $1.30 over Dated. Mercuria was happy with that and then withdrew its FOB 22-24 Sep Brent offer at Dated -$0.80. Meanwhile, Trafi and Exxon offered Forties for 23-25 Sep and 26-28 Sep at Dated +$0.20 and Dated -$0.20, respectively. Ekofisk was offered too, with Shell going as low as Dated +$2.30 for a CIF 1-5 Oct cargo, while Mercuria offered FOB Sep 29-1 Oct at $1.25 over Dated. The physical differential hit rock bottom at -49.5c.

Volumes are up on the week but down on the year!

Aramco set the Arab Light OSP to Asia for October at a premium of $2.20/bbl over the average of Dubai and Oman, exactly the same level as the August OSP. This is a reduction of $1.00/bbl versus September. September OSPs were a problem as nominations from China plunged from 51 mil bbl in August to 43 mil bbl. Hopefully, the sharp reduction in OSPs will resurrect nominations from China and other buyers. Aramco has been noting their crude balances are increasing and they need more sales. Markets always balance through policy or price. In this case China has come to the rescue with a policy to store up barrels for their SPRs. ‘We are buying,’ said a Chinese source, while others noted potential sales of as much as 500 kb/d!

The Saudis like to make a big entrance at the conference in Asia, where most of their crude is sold. And oh boy, one could almost say they crashed the party. Their OSPs were way too low and took the wind out of flat price. One Saudi shrugged his shoulders and said, ‘we need more sales.’ Arab Light OSP to Asia cut by $1.00/bbl!!! The mega cut rattled the market, with many traders concluding it could push Brent/Dubai higher – a trader exclaimed those spreads “[are] going to the moon!”

The attendees of APPEC certainly have a busy schedule of chatting and canape eating this week. Asia opened with a bang today, recovering by nearly 1.5% following a disastrous fall of over 2% last Friday. Traders were afraid OPEC would muck it up and mismanage the crude production increases in its Sunday meeting. The mood was very bearish heading into the weekend, but the market interpreted, correctly we may add, that not much would effectively change since most producers are already at maximum output capacity. Some felt the market would eventually correct down but commentators hedged their bets calling for a fall – but next year!