The Officials

A surge upwards on reports Iran would retaliate against Israel yesterday evening set us up to begin November above where we expected, as prices shot up faster than a ballistic missile launch. Markets are still very twitchy hearing headlines about dangerous geopolitical developments. And once the Europeans woke up, they wanted to get in on the action, spurring Brent flat price to almost $75/bbl by 08:45 GMT. A post-window selloff, however, saw it fall back towards $74 before midday.

October has been a rollercoaster ride. With fears of chaos from the Middle East, and hurricanes huffing and puffing across the Gulf of Mexico, we’ve seen some big and sudden price moves. Brent even breached the $81/bbl level at the height of war paranoia. Fortunately, Israel’s relatively minor retaliatory strikes soothed concerns, and we ended up only slightly higher than where we started the month. At least until the latest war talk came out this evening about another major Iranian retaliation. OPEC also semi-announced it would not increase production but only the long traders believe them.

Ahead of tomorrow’s expiry, physical diffs remain backwardated, at around 40c, though the macro picture is little changed. Geopolitical concerns have eased since last week, yet Brent flat price is stubbornly maintaining the $72 handle, with 37c of backwardation in the front spread. But, at 12:25 GMT, a headline reporting OPEC could postpone its supply cut unwind sent flat price straight upwards. We’re still susceptible to aggressive headline moves in such a jittery market, but it’s only a matter of time before the 60s come a-knocking.

Well, we made it through October and we’re almost went back to where we started! The Brent flat price low was on Oct 1 at $70.34/bbl and we closed the Asian oil trading month at $71.95/bbl. What a rollercoaster it has been as our readers grappled with bad macros and two, actually three, recalcitrant nations bent on laying waste to defenceless civilians. Really, the battle of the grandpas. Age is no barrier, particularly when you are in command. We had missiles going there and coming back while producing nations surely thanked the old folks for the widening geopolitical oil premium. Just give it a rest, we say as we look forward to the US elections where almost surely we will have a change in the *** guard. I don’t want to repeat the same adjective, lest someone accuse me of ag*ism. But yeah, despite the boom boom the premium came off and we are again staring at the line where the 7 turns into a 6 and the recurrent budget cutbacks hit the oil industry. We are there anyway and as a prelude results released by the industry are bad, really bad. And even Saudi Arabia is putting out the cap hoping to borrow just a smidge to tide them over. It is that bad.

A double dump just after 15:00 BST sent Brent flat price well below $71. Or was it a double tap? On the back of the head of course. Netanyahu could hold talks with ministers about an orderly end to the war in Lebanon. We’d be delighted to see a diplomatic resolution but remain cautiously optimistic; we’ve seen many headlines speculating about peace talks in the past year. Strong resistance around $71 held firm despite the headline. But, should that break, we could see a rapid recalibration towards the 60s. There’s a trapdoor. It’s only a matter of time before there’s too much weight on it and we fall through. Brent closed at $71.02/bbl. The 60s are calling… The window saw BP offering Midland at $1.80 over Dated. Eni showed up too, offering Ekofisk at Dated +$1.75, and Mercuria came in to bid for Forties at Dated +$0.45. Totsa took a break from its incessant bidding in Dubai, to offer a Brent at $0.70 over Dated. Diffs are coming back up to around 33c. Brent futures front spreads are 45c, so things are finally starting to make sense again in the North Sea… for now.

In the window today we got a frenzied cat and mouse. Or perhaps more like a bull and a cowboy, between Totsa and Chevron. Despite le Totsa Taureau’s best efforts, the physical premium got slammed down to 78c in the penultimate Asian trading day of the month. That’s half the value of October’s average premium! Chevron’s cattle wranglers were hitting bids as soon as they landed on the table, catching Totsa in a tight lasso. After Chevron declared an Upper Zakum to Total yesterday, the window’s bonanza saw them converge twice more! This time for another Upper Zakum and an Al Shaheen.

The Nothing Burger US/Israel-Iran ding dong sent prices directly downwards. The low 70s should soon give way to the 60s. We miss the decade, or is it just the music? We’ve already got plenty of anti -war protests, just prepare for a return to rock and roll and big hair dos. Traders needed a moment to breathe after the open’s $3 free fall and prices vibrated around through the day, gradually descending to eventually close at $71.97/bbl.

Well… the Sucker sold off. Macros took over the market and a six handle is coming for a third and final time. The Israeli parsimonious retaliation, if you can call it that, underwhelmed everybody and the market sold off. Oil is off. Depending on the time of the day, it’s 6% off. The Sucker really took it on the chin. Israel struck military targets in Iran early Saturday morning. The poxy retaliation underwhelmed and saw the risk premium get whacked. Front month Brent shed around 5% from Friday’s close. Now the geopolitical risk premium that was fluffing up prices seems to be dissipating, what’s left to stop the free fall? Macros are really bad, the Saudis are bringing production back in December, and ADNOC looks set to follow. Sentiment is undeniably bearish, and a descent to a $60 handle looks almost certain. Will we even be trading Brent with a number starting with 5 soon? The market has to facilitate storage and for that it needs contango.

The US is looking ever more set for a return to Trump. Bookies are now giving the Donald a 65.6% chance of winning the election, less than two weeks before the polls. The polls still show the two on level pegging. Which do you trust more? Additional supply coming from OPEC in December might offer some help to struggling margins, as crude prices should fall and thus open up the margin. Additional voluntary cuts from Saudi Arabia, Iraq, Russia, the UAE and some other members took 2.2 mb/d off the market. If the Saudis are bringing back around 1 mb/d, as we’ve heard they are, that leaves 1.2 mb/d unaccounted for and we don’t imagine the Russians or Iraqis will want to miss out on that kind of market share and potential revenue. As our catchphrase goes: they need the money!

Le Totsa Taureau says “Sacré bleu!” as the physical premium is eviscerated. Exxon was leading the charge. We’ve been thinking the physical premium for Dubai was disproportionately strong given the weak fundamental picture in Asia. And today we saw that differentials collapse. Those betting physical Dubai would keep up its momentum have seen those hopes go down the drain. The physical premium tumbled by 39c all the way down to $1.14 – that’s the lowest we’ve seen since 27 August!

It rose, then it fell much further. By lunchtime Brent had hit the mid $76 level but fell towards the low $74 through the afternoon. It settled here and closed at $74.52/bbl. Brent front spreads had strengthened with the spike in flat price, peaking at 46c, but came off in parallel too, down to 38c.
The window was silent – no bids nor offers to be seen. And the North Sea may become quieter still; Harbour Energy wants to end its operations in area. Just another party jumping ship before high taxes take effect. Laffer curve in action (for the economics nerds). Serica Energy also sees the UK’s jurisdiction in the North Sea as “un-investible”. It’s not looking all that great for the UK’s oil industry.

We hear that one of your favourite and most widely used benchmark producers – not us, obviously – is going for a tight embrace when it comes to setting subscription renewal rates. Their grip is so tight your eyes bulge first and then your guts burst out, so we are told. A squeeze so tight, it’s putting every trader’s efforts in Dated Brent to shame. The grapevine also reported that at least one subscriber was invited to renew at a 300% increase!

A steady morning selloff was reversed when the US came in and started buying at lunchtime, sending Brent back upwards. It peaked at $75.70/bbl but fell back down after the unexpectedly large 5.47 mb build in EIA inventories surprised markets and triggered a quick sell off. It finally closed at $74.92/bbl. The EIA’s weekly inventories data showed a far bigger build than their API counterpart last night. Gasoline stocks also grew, by 878 kb. But keep an eye on Cushing, which saw a draw in its stocks of 350 kb.

The physical window was much more active on the sellside today than recent sessions; the sellers were in the driving seat. Chevron was whacking bids left, right and centre. Reliance and Exxon also featured heavily on the sellside, hitting bids from the likes of Totsa and Mitsui, as usual. This culminated in Reliance declaring a cargo of Upper Zakum to Mitsui, while Repsol nominated one of the same to Totsa for their own convergence. But premiums are coming in, back down to $1.55/bbl. It seems like Dubai is starting to deflate. In paper markets, prompt structures have weakened over the month: the Nov/Dec swaps spread has fallen from 60c on the 7 October to 28c today.

Up, up, up it goes! Brent flat price climbed all day, with major surges in the late morning and then in the afternoon. It
kept on rallying beyond $76/bbl after the window. A pedal to the metal kind of day sent Brent to a close at $75.94/bbl.
A $3 rally over two days, but why? What’s changed? Wishy washy geopolitical fears haven’t seen anything to send
prices skyward. No great economic reversal to boost demand optimism. But maybe ‘He’ knows. He always knows.