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Brent gapped down on the open on Monday as a chunk of geopolitical risk was removed following a bearish market reaction to Israel’s attack on Iranian military bases. US-backed ceasefires continue to bring some hope, and geopolitical tensions are semi-resigned to the backburner of public attention. Betting sites show Trump’s next presidency at a 65% sure thing, although national polls are pretty tight. With a week until the big day, the US has been focused on establishing who is and is not ‘garbage’. The moral highpoint surrounding Trump’s comedian’s Puerto Rico gaffe dropped like SMCI stocks as Biden had his very own garbage gaffe. Macro releases from the States are pretty murky and seem a step away from the clean, soft landing that was discussed. More polls indicate an even split from ‘analysts’ as to whether OPEC will return the promised/threatened December barrels. The return being in question, let alone out loud, seems far from a good thing.

In crude, the Dated structure was better supported this week. Forties set the curve, which was bid in the front and back. Nov’24 DFL rallied from around -10c/bbl last week to near 45c/bbl. There has been good Chinese selling in Jan’25, and Q2’25 continues to be well offered.

In fuel oil, the rally in HSFO has tapered off with spreads in both regions seeing less buying in weeks previous, and prices came under pressure on lower Brent spreads and deferred crack buying. Sing 0.5 initially weakened on rumours of increased supply out of a Malaysian refinery, but levels returned to previous highs with trade houses buying the dip.

In distillates, ICE gasoil has been extremely resilient with cracks and spreads seeing an upside breakout and breaching technical resistance levels. However, Sing10ppm has outpaced European strength with the East/West rallying above -$10/mt at one point. Jet was even stronger with seasonal demand picking up, with Nov’24 regrade peaking at $2.45/bbl.

In gasoline, a continuation of last week’s gasoline E/W bear play was sold into this week alongside decent 92 spread buying. EBOB, however, has been weak, especially the Nov/Dec’24 spread. RBBRs moved sideways, somewhat supported by a weaker EBOB strengthening TA arbs.

This week, the naphtha market saw early support from MOPJ bids, but sentiment flipped bearish mid-week, with the Nov’24 NWE crack dropping to -$1.85/bbl on 30 Oct. In the East, the naphtha E/W spread initially rose, reaching $23.25/mt on 25 Oct, before declining to $19.25/mt by 31 Oct as the window saw less support and around Diwali.

In NGLs, US propane stocks saw consecutive weekly draws, driving up LST and narrowing the prompt C3 LST vs. C3 FEI arb to nearly -$200/mt, though weaker exports might temper further upside. In Asia, FEI propane weakened as spreads softened, alongside a strong settlement in Saudi propane. The front-month C3 CP settled today at $635/mt amid solid demand and bullish sentiment, which pressured Dec’24 FEI/CP to around $10/mt.

After rallying this morning, the Jan’25 Brent futures contract saw continued strength this afternoon, moving from $72.65/bbl at 12:00 GMT up to $73.23/bbl at 15:25 GMT, however, price tapered off to $72.75/bbl by 18:05 GMT (time of writing). Crude oil prices were supported with ongoing uncertainty regarding a potential Israel-Lebanon ceasefire deal.

In the news today, the IMF has cut their Middle East GDP growth outlook to 2.1% for this year, slashed by 0.6% from their April forecast. According to the IMF, this comes amid continuing regional conflict and expectations of a delay in OPEC+ oil production cuts.

In other news, TotalEnergies missed the analyst estimate of $4.27 billion profit for Q3’24, reporting an adjusted net income of $4.1 billion on weaker refining margins and lower LNG production.

Finally, Rosneft’s Tuapse oil refinery, one of Russia’s biggest Black Sea refineries, is due to resume operations in November. The facility was suspended from 1 Oct because of low margins on refined fuels, however, is expected to process about 480,000 metric tons of crude oil next month, as per Reuters. At the time of writing, the Jan/Feb’25 and Jan/Jul’25 Brent futures spreads stand at $0.37/bbl and $1.16/bbl, respectively.

The Jan’25 Brent futures contract strengthened marginally this morning, moving from $71.70/bbl at 07:00 GMT to touch $71.80/bbl at 10:30 GMT (time of writing). Price action was volatile this morning alongside fluctuating geopolitical risk premia, spiking to almost $72.10/bbl around 08:30 GMT before descending below $71.50/bbl at 10:00 GMT.

We also saw downward pressure amid resuming Israel-Lebanon peace talks, with an Axios report stating that US President Biden’s senior advisors are travelling to Israel tomorrow in an attempt to close the ceasefire deal. In the news today, crude oil production at Mexican state-owned giant Pemex was at nearly 1.75mb/d in September, down 1.2% y/y, according to a note by Giovanni Staunovo.

In other news, PetroVietnam said today that Saudi Aramco is looking to invest in oil refining, petrochemicals, and oil product distribution in Vietnam, as per S&P Global. Aramco CEO Amin Nasser stated the oil giant will send a working group to Vietnam soon to advance discussions on multiple projects, however, specific details are yet to be disclosed.

Finally, CNOOC has signed an oil contract with Iraq’s state-run Midland Oil Company to develop the Block 7 field, located in the Diwaniyah province. While CNOOC anticipates a large discovery of crude oil, appraisals are needed to accurately understand Block 7’s reserve potential, as per Reuters. At the time of writing, the Jan/Feb’25 and Jan/Jul’25 Brent futures spreads stand at $0.35/bbl and $0.86/bbl, respectively.

The Jan’25 Brent futures contract strengthened this afternoon, increasing from $71.90/bbl at 12:00 GMT up to $72.35/bbl at 17:45 GMT (time of writing). Price spiked 75c up to $72.65/bbl shortly before 12:30 GMT amid an OPEC+ announcement that the oil production hike planned for December could be delayed by more than a month, as per Reuters.

In addition, EIA stats released at 15:30 GMT for the week to 25 Oct showed a draw of 0.5mb in US crude oil inventories, which supported prices further. In the news today, US mediators are working on a 60-day ceasefire between Israel and Hezbollah, as per Reuters. Meanwhile, Israel has continued its attack on Lebanon, targeting the city of Baalbek today.

In other news, according to a Bloomberg report, oil production in Guyana dropped 11% in Q3’24 while Exxon temporarily shut two of its three vessels for maintenance. Hess Corp., which has a 30% stake in the Stabroek Block, stated that its share of production declined to 170kb/d from 192kb/d in Q2’24.

Finally, Russia’s Gazprom has boosted its 2024 investment plan by 4% to $16.9 billion thanks to rising exports and domestic supply. The company continues to develop projects aimed at increasing gas supply to China, according to Gazprom’s Deputy Chairman of the Management Committee, Famil Sadygov. At the time of writing, the Jan/Feb’25 and Jan/Jul’25 Brent futures spreads stand at $0.37/bbl and $1.07/bbl, respectively.

The Jan’25 Brent futures contract strengthened from $70.90/bbl at 07:00 BST to $71.75/bbl at 10:35 BST (time of writing). Prices saw support this morning amid reports of Chinese power demand growing faster than expected in 2024.

In the news today, according to the China Electricity Council’s Q3’24 report, the country now sees 2024 electricity consumption growing by 7% to 9.9 trillion kWh. In its previous report, the group had forecast 6.5% growth to 9.82 trillion kWh. In other news, Israel is maintaining the intensity of its attacks on Gaza, with a Reuters report stating at least 60 Palestinians were killed and dozens wounded in an Israeli strike on a residential building in the northern Gaza town of Beit Lahiya today.

Finally, Reuters reports that Mexico has sent a crude oil cargo of 400kb to Cuba, which is expected to arrive by the end of the week. Cuba is currently experiencing a series of blackouts alongside food and fuel shortages. At the time of writing, the front-month (Jan/Feb’25) and six-month (Jan/Jul’25) Brent futures spreads are at $0.37/bbl and $1.04/bbl, respectively.

The Brent futures market was taut in anticipation and volatility last week as the leak of intelligence about the, at the time, looming Israeli strike on Iran meant that the waiting game would have to continue, and there were fewer clues. The front spreads have been rangebound over the fortnight, and the DFL market has superseded this, allowing for the Dated-to-Lead (DFL vs Brent spreads) structure to swing up.

The question for spreads is whether they see the support from the Dated structure ripple through the DTL reverting, or whether the anticipated heavy pressure in the futures structure will strike through the structural integrity of the curve. The physical differential dropped to around 5c on 17 Oct and has gently been implied higher since.

The physical crude has been supported, and the diff has been implied higher every day in the past 2 weeks to around 26c on 28 Oct Looking at the implied diff on the forward curve, this is around 50c for next week. This shows there is expected strength in the market, and the phys is implied to rally on this. 28 Oct saw some offering from majors and a trade house offering Midland but the diff was supported from Gunvor bidding Forties at the back of the curve. Looking to the States, a more robust freight structure has helped Midland to be paid at a premium, although lower freight and some glimmers of US selling have pointed to some more Midland coming to Europe.

In the paper, the 04-08 Nov and 11-15 Nov CFDs have been really well bid, with strong buying from a London trade house. This has been a real support to the Dated structure and has helped the Nov/Dec DFL roll to 30c/bbl and the Nov/Dec Dated roll up to 60c/bbl.

From a risk/reward perspective, it feels quite hard to be bullish at these levels in the DFLs. The market is strong right now, but the question is whether it can maintain its strength and whether the physical diff can push it to the strongly implied curve.

After selling off overnight to around $72.25/bbl following Israel’s Friday night retaliation against Iran for their 01 Oct attack, the Jan’25 Brent futures contract has seen further weakness this morning, moving from $72.55/bbl at 07:00 GMT down to $71.10/bbl at 10:20 GMT (time of writing).

Crude oil prices declined as Israel’s attack left Iranian nuclear and oil infrastructure unscathed, easing fears of a potential supply disruption. In the news today, Iranian Foreign Ministry spokesperson Esmaeil Baghaei said Iran will “use all available tools” to respond to the Israeli attack on Iran’s military infrastructure, as per Reuters. In other news, India’s Bharat Petroleum has stated that its Russian oil intake for crude processing has fallen to 34% between July and September this year due to maintenance of units at its Bina and Kochi refineries.

The state-run company has a production capacity of about 706kb/d across its three refineries in India, according to a Reuters report. Finally, according to Libya’s National Oil Corporation, Eni and BP have resumed exploration in the Libyan Ghadames Basin, where onshore drilling has been halted since 2014.

Meanwhile, Repsol is preparing to restart drilling in the Murzuq Basin, and OMV is to begin operations in the Sirte Basin in the coming weeks. At the time of writing, the front-month (Jan/Feb’25) and six-month (Jan/Jul’25) Brent futures spreads are at $0.31/bbl and $0.85/bbl, respectively.

Summary

In the early hours of Saturday, Israel launched a series of targeted airstrikes on Iranian military targets, killing 4. This move has temporarily eased the oil market’s anxieties, which have been high on Middle Eastern tensions and the geopolitical risk premium associated. Iran’s response to the strikes has been perceived as quite measured. Ayatollah Khamenei urged caution, emphasising that any response would be a military decision. Israel, on the other hand, seems satisfied with the operation, with Prime Minister Netanyahu describing it as precise and successful. The Biden administration appears keen to cool tensions ahead of the upcoming US election, which has Trump projected to win in many polls and betting sites.

The outright product prices inched up in the week as crude strengthened to over $75.55/bbl in Jan’25. 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. But with prices neither overbought or oversold, it shows that trends are not particularly aggressive nor sustained in either direction, as the week to 24 Oct was defined by a lack of clarity in the geopolitical landscape which affects the contracts. RSI for all three contracts was pressured even as the flat prices increased which shows the momentum of the strength was really weakening and there may have been even further consolidation if it wasn’t for the strikes on 26 Oct.

The WTI/Brent forward curve continued to be quite irregular down the curve. The curve lifted in the week, with the Jan’25 contract increasing by 20c/bbl, although due to the uneven nature of the curve, the week-on-week change narrowed into the second half of the 2025 contracts. This is interesting as it perhaps shows the soft landing impact on the US economy being caught up to or more production under Trump.

Looking at the 30-day correlations for the futures contracts, the RBOB crack and the crude contract have developed a stronger positive correlation as there has been a stronger Brent-driven flow in the market and points to speculative players, rather than physical hedging.

The Jan’25 Brent futures saw an interesting trend this afternoon as price action initially rose from the $71/bbl level at 13:00 GMT, creating a triple top pattern near $71.90/bbl before falling lower to $71.35/bbl by 17:30 GMT (time of writing). Alongside reports of PetroChina’s plan to shut its largest refinery in 2025, the Jan’25 contract tested the $71.90/bbl level on multiple occasions throughout the afternoon.

However, crude oil prices ultimately failed to sustainably stay above this level, amid a removal of some of the geopolitical risk premium previously supporting oil prices. In the news today, state-owned PetroChina is projected to shut its Dalian Petrochemical plant in 2025, which accounts for 410kb/d, or 3%, of the total Chinese refinery output, according to Reuters.

In other news, Chinese oil and gas exploration company CNOOC reported a net profit of $5.2 billion for Q3’24, up by 9% y/y from 2023. In the first nine months of 2024, CNOOC made 9 new discoveries and appraised 23 oil and gas-bearing structures. In other news, IndianOil, the biggest refiner in India, has released its Q2’24 results, showing that the company’s net profit fell by 98.6% y/y, partly influenced by low fuel demand in the monsoon season.

At the time of writing, the front-month (Jan/Feb’25) and six-month (Jan/Jul’25) Brent futures spreads are at $0.34/bbl and $0.92/bbl, respectively.

The Dec’24 Brent futures contract regained strength after initial weakness this morning, falling from $74.60/bbl at 07:00 BST down to $74.20/bbl at 09:10 BST and strengthening to $74.75/bbl at 11:15 BST (time of writing).

Prices were sustained at high $74.00/bbl levels amid escalating geopolitical risk in the Middle East, with three journalists killed in an Israeli airstrike as they slept in a residential compound housing media workers in southern Lebanon in the early hours of Friday, an attack condemned as a war crime by the Lebanese government.

In the news today, according to S&P Global Commodity Insights, India’s crude oil demand is expected to increase by 50-55kbp/d during festival season, a 4% rise for Q4’24 coinciding with greater agricultural activity post-monsoon. In other news, Brazil has displaced Malaysia as the top supplier of Venezuelan heavy crudes to China in the month of September. Bitumen blend imports from Brazil to China reached nearly 769,900 metric tons in September, accounting for 72.7% of China’s total bitumen blend imports, according to data by S&P Global.

Finally, Italian energy group Eni will increase its share buyback programme by 25% to $2.2 billion after beating Q3 profit expectations, as per Reuters. At the time of writing, the front-month (Dec/Jan’25) and six-month (Dec/Jun’25) Brent futures spreads are at $0.35/bbl and $1.53/bbl, respectively.