Author Archives: Chad

Market Update

Over the past week, the Dated Brent market has been unmistakably rangebound. The front Brent spread mean reverted around 40c, and the geopolitical risk premium normalised in the flat price in lieu of genuine, bullish movements from either side as third parties try eagerly to resolve and or protect energy security ahead of the US election in particular.

The prompt DFL fell to -10c/bbl on 15 Oct as spreads and the flat price came off on the news that the Washington Post reported Israel would not strike Iranian Energy, alongside British majors and Geneva trade houses offering Ekofisk, moving the physical diff to around 16c. The physical diff weakened following this, but the DFL recovered to 18c/bbl on 22 Oct in thin trading.

The physical diff slumped in the week and failed to hold much strength above 10c, although a Geneva trade house lifted Ekofisk on 18 Oct from a major which supported the curve and pushed the diff toward 10c. Prior to this, the diff found a floor at around flat on 15 Oct before it was supported. 16-17 Oct saw the diff implied around 5c before it strengthened to around 12c on 21 Oct. This meagre support may have been added to as a major flipped from selling to buying in the North Sea (when they were previously buying mainly in Dubai).

Onyx counterparty type data reveals strong selling in the Nov’24 DFL from refiners. Refiners sold a net of 2.128mb to Onyx in the week, bringing their total net position to 3.27mb sold. This is by far the largest net position held in any DFL with Onyx. In the prompt CFD structure, there was refiner selling in the pricing CFD, although they bought 150kb of the 04-08 Nov CFD and 340kb of the 1-week roll.

The Brent/Dubai market saw another tumultuous fortnight that ultimately resulted in an upwards shift in the prompt tenors. Cal25 has been comfortably supported at the $1/bbl level. However, the main story has been in the front, where the Nov’24 Brent/Dubai initially threatened to break below $1/bbl on multiple instances before rallying above $1.20/bbl on weakness in Nov’24 Dubai.

As Nov/Dec Dubai witnessed aggressive selling, the spread fell from $0.45/bbl to $0.30/bbl before correcting up to $0.35/bbl. The prompt time spread had fallen to 3-month lows, and the sell-side intensity was such that the Nov/Dec/Jan Dubai fly fell into negatives, and is marked at -$0.03/bbl (at time of writing). In line with this, the Nov/Dec Brent/Dubai box was supported up to $0.10/bbl, creating a kink on the Brent/Dubai forward curve. However, we did not observe a consistent flow that fundamentally justifies or motivates this move. As detailed in the trade idea, we believe this area may be due for a correction.

Market participants’ perception of Middle Eastern geopolitical risk has been fluctuating, and price action has accordingly been topsy-turvy. Increasingly, price action has been driven by Brent futures, with the corresponding spikes and elevated volatility in Brent/Dubai having sidelined many participants. Instead we’ve observed increasing screen trading on Brent/Dubai, with OTC volumes relatively quiet. Open interest in the Nov’24 Brent/Dubai has plateaued and declined since 4 Oct, falling by 9% from 73.7mb to 66.9mb. Comparing this to the open interest of the previous months, levels in the current M1 are the lowest relative to the previous months.

Dubai physical premiums have weakened since the previous report, falling from $1.84/bbl on 11 Oct to $1.55/bbl on 21 Oct, suggesting expectations of a better supplied market going into the January-loading cycle. Market positioning shows selling interest in the Q4’24 Brent/Dubai tenors from a variety of players, looking to sell into the highs. However, price action in outright Brent/Dubai has not grinded lower, stubbornly sitting above $1/bbl. We therefore may be entering a new regime in this market, in stark contrast to the trading ranges this time last year.

The Dec’24 Brent futures contract found strength this morning, trading at $73.29/bbl at 07:00 BST and increasing to $74.10/bbl at 11:00 BST (time of writing). Price action saw upward movement this morning amid a new wave of Israeli airstrikes on Hezbollah-affiliated financial institutions, heightening concerns that Israel is expanding its offensive beyond military infrastructure.

Meanwhile, satellite imagery has shown that Iran has partially filled its Jask oil terminal with crude oil, as the country seeks to reduce its reliance on the Strait of Hormuz for oil exports. In the news today, according to the General Administration of Customs (GACC), China reduced its crude imports from major suppliers in the month of September. GACC data showed China’s daily crude imports from Russia, Iraq, and Brazil fell m/m by 4.52%, 16.00%, and 48.85%, respectively.

However, crude imports from Saudi Arabia increased to 1.81mb/d, up 44.92% m/m since August. In other news, South Sudan’s crude oil exports are set to resume as a blockage in a northern pipeline via Sudan has been cleared. As per Bloomberg, the pipeline funnelled more than 150kb/d to Port Sudan prior to its breakdown in February this year.

Finally, the Indian oil minister Hardeep Singh Puri stated that India’s petrochemical sector is projected to receive investments worth $87 billion over the next decade to meet rising demand. At the time of writing, the front month (Dec/Jan’25) and six-month (Dec/Jun’25) Brent futures spreads are at $0.36/bbl and $1.43/bbl, respectively.

Summary

The Brent futures complex sharply retraced lower last week as the geopolitical risk premia faded on the prospect that Israel’s retaliation strike against Iran will not be targeted towards its oil or nuclear facilities. The week ending 14 Oct saw Brent have its largest weekly decline since the week ending 6 Sep. Price action in the Dec’24 contract rapidly fell by $3 overnight on 15 Oct from around $77.50/bbl to $74.50/bbl following the release of the Washington Post article before stabilising and trading rangebound between $74-75/bbl. This was followed by a breakout towards the downside on Friday afternoon (18 Oct), briefly falling below the $73/bbl level. Despite the killing of former Hamas leader Yahya Sinwar in Gaza and Israel targeting the financial centers of Hezbollah activity in Beirut, the market is likely to shrug off such headlines until a genuine threat to oil supply is demonstrated. Another bearish factor was OPEC and IEA both cutting their global oil demand growth forecasts, with China’s economic troubles as the common denominator.

Although the flat price saw a large downwards correction, Brent futures spreads remained robust and firmed on the week. This also applied to the flies, where Dec/Mar/Jun rose from $0.31/bbl to $0.60/bbl. The divergence between flat price and structure suggests that the mean reversion in flat price was mainly driven by the fading geopolitical risk which was relatively unrelated to physical market dynamics. The WTI/Brent forward curve also flattened on the week, which came on a combination of a weaker Brent futures alongside stronger Brent spreads in the front.

Looking at the technicals, price action for the flat prices traded within the Bollinger bands with the RSI trending downwards but remaining in neutral territory. Prices came off on 15 Oct and stabilised and consolidated for three trading days near the 20-day simple moving average line in a low volatility environment before breaking out to the downside on 18 Oct. But with prices neither overbought or oversold, it shows that trends are not particularly aggressive nor sustained in either direction. Out of the three selected futures contracts, the gasoil market was relatively weaker on a fading geopolitical risk and bearish demand, while gasoline was better supported on supply tightness concerns.

In the week to 18 Oct, we saw generally bullish sentiment across the crude oil ETF options, driven by a combination of buying calls and selling puts. USO options continued its bullish streak, registering a positive delta volume on every trading day. It was a risk-off week for the UCO ETF options, and notably, retail traders were influential in reversing intra-day sentiment, generating a delta volume of -110k in 2 hours. Finally, the SCO registered a bearish delta on 18 Oct, reflecting market participants’ bullish view on flat price.

Finally, we note that the 30-day correlation between the middle distillates (Gasoil, Heating Oil) cracks and the crude oil benchmarks have increased w/w, from around 0.05 in the previous report to around 0.44 in the current report. The dynamics affecting price action in both markets have become more intertwined with both being sensitive to geopolitical developments in the Middle East.

Dec’24 Brent futures flat price weakened this afternoon, dipping from $74.40/bbl at 12:00 BST to $73.60/bbl at 16:10 BST, but recovering slightly to $74.15/bbl at 17:00 BST (time of writing). Price action dipped after the IEA’s Executive Director, Fatih Birol, told Bloomberg in an interview that global oil demand is “much weaker than previous years” and “we expect this will continue because of one word – China”. Birol continued that there may be “some spikes” in oil prices due to Middle East tensions but asserted there would be no issues with “the availability of oil.”

In the news today, US Secretary of State Antony Blinken has departed for the Middle East to kickstart ceasefire negotiations following the death of Hamas chief Yahya Sinwar, according to Reuters. The US State Department has said Blinken’s first destination is Israel but did not specify other countries on the itinerary.

In other news, Iraq’s Kerbala refinery, with a capacity of 140kb/d, is set to resume operations on Tuesday after completing maintenance work, as per the Iraqi Oil Ministry. Finally, the newly inaugurated Indonesian President Prabowo Subianto is looking to revive the country’s oil and gas industry, as per Reuters.

Indonesia plans to cut regulations and reactivate idle wells while tapping into gas discoveries in Southern Andaman to enhance output. At the time of writing, the front-month (Dec/Jan’25) and six-month (Dec/Jun’25) Brent futures spreads are at $0.33/bbl and $1.39/bbl, respectively.