The Officials

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.

Conflict is the gold dust on oil markets. $75.00 market here we are! Post window Brent markets rose up to $75.14/bbl.
After a softish close in Singapore, the rumour mill got going about Netanyahu meeting his military leaders this evening.
Pardon us, but Mr. N thought he was a hands-on man, who meets with them every day. Never mind, Brent duly
responded and showered money to all the longs after trading at nearly $73.50/bbl in the morning. Shorts are an easy
market in the period preceding whatever the Israelis want to do. We remain of the thinking that any action will be very limited in nature as the Election is soon and Kamala’s job is on the line.

As the US elections peek over the horizon and Trump serves up Maccies fries, the oil markets trudge on. We were on tenterhooks awaiting the window this afternoon after last week’s dramatic display of collapsing diffs as the Dated Donkey got hammered below the ground. Today’s window was offered, but above the zero line and no bidders played ball. Glencore offered two Forties cargoes: for Nov 10-12 at Dated +10c and for Nov 13-15 at +20c, but didn’t find any takers. Phillips was the other player offering, bringing a mid-Nov Midland at Dated +$1.60 to the table. The futures-physical dislocation remains, but may be closing in. Physical diffs are around flat, while Brent futures front spreads weakened from 40c on Friday to 32c today.

Flat price is in a funk, shimmying and sliding but going nowhere. The Iron Dome has been referred to as the Iron Colander following Iran’s strikes against Israel and it seems like air defences aren’t the only leaky thing in Israel. A leaked document appeared to illustrate Israel’s preparations for a retaliatory strike against Iran. The mole or tongue wagging source has not yet been identified, but don’t worry, the US is on the case. The Israeli military will have to go back to the drawing board and rework their plans. Despite this leak suggesting escalation is probable and maybe even imminent, Brent flat price did little at this morning’s open, though it rose steadily from around $73/bbl towards the $74/bbl handle by 10:45 BST. And another day, another ceasefire effort. The US envoy Amos Hochstein will reportedly hold talks with Lebanese officials today, aiming to arrange a ceasefire… again.

We’re hearing more and more people say Europe is slowly dying. We disagree. We think it is dying rather quickly. Economically, we mean. Or maybe it’s already in the zombie stage. The heartbeat is faint but the rhetoric is still strong. It reminds us of AI hallucinations. Brain and reality are not aligned. Debt and manufacturing weakness don’t make the region look healthy and it’s verging on flatlining. Just check out France’s insolvency filings! Corporate bankruptcies are up 49% since August 2021. Business as usual, nothing to see… Or better yet, nothing to see here after the companies are dead.

China beats GDP growth market expectations, but let’s start with Dubai and our famous Totsa Taureau! And, by the way, also keep an eye on the Brent/Dubai spread as Totsa sells North Sea and buys Middle East. Maybe they are following Macron’s destruction of the French budget as a hint to sell the European benchmark. It looks like Totsa’s monumental efforts in the Dubai window are paying dividends. Swaps remained steady, just 2c down from yesterday, as the physical strengthened. This put the phys premium back up to $1.68, above the October average again. Totsa must take much of the credit; it led the buyside pack’s forward march. The buyers and sellers came together at $74.19. Exxon hit bid after bid, but Reliance and Chevron were also selling. As ever, Mitsui joined Totsa on the buyside, and the old pals from way back in August, Vatman and Gobin, renewed their dynamic duo status, each picking up partials. But gone are the glory days of their domination of the window. Meanwhile, Trafi is keeping the market guessing about its strategy; in today’s window it flipped to the buyside, having been major seller in previous sessions. Repsol converged with Mitsui, nominating an Upper Zakum.

The physical and futures detachment still has us scratching our heads. Traders were waiting with offers on the table but found no bidder. Glencore offered a mid-Nov Ekofisk at Dated +$1.75 and a mid-Nov Forties at Dated +$0.45; BP and Total each offered an early-Nov Ekofisk at Dated +$1.45 and +$1.95, respectively. Phillips also offered a Midland for mid-Nov at +$1.75. A rare 640kb Hebron cargo was offered by Suncor at Dated -$2.15 for end-Nov loading. But none of these offers were met with a buyer.

The window was ram-packed with ‘sells to Totsa’ as bids were whacked almost as soon as they hit the table. The French major seems to be trying to defend a tired-looking physical premium which has declined from the $1.80s to $1.54 today. It reminded us of the Maginot line for those WW2 history buffs. We know what happened there. Totsa stepped on the gas and got hit for partial after partial, while Mitsui threw their hat in alongside the indefatigable French. At least someone in France has some money, even if the government doesn’t. Dear trader in Asia, look at Europe. It doesn’t look good.

The North Sea was brutal today. The Dated Donkey got killed and went subterranean. In yet another instance of Dated Brent and components acting wildly this year, Forties traded below the zero line, after bidding went as high as +$2.20 in early August. The instrument needs a proper think-through before too many producers and consumers buffeted by the volatility shout out words starting with F or M, which we could take for Fiddling and Manipulation. Maybe there are other nouns. Diffs got smashed as Shell kept offering a mid-Nov Forties down to -5c below Dated. It dangled for a while before Glencore lifted it. They had to think before going for the bargain. The differential collapse contrasted with a Brent flat price that only moved upwards by 25c. There was one other trade in the window: Equinor lifted an early Nov CIF Ekofisk at +$1.55 over Dated from BP. What’s driving Shell to send the physical diff down? We don’t know, but it worked!

After Monday evening’s plummet, Brent flat price continued to cool a little today. It closed Asian trading at $74.17/bbl and looks nearly ready to move lower again. Not quite yet though, as Brent appears to have found some support around the $74/bbl mark. The scale of the price drop following the Washington Post headline demonstrates that the market is still very nervous about any Middle East-centred headlines, although it has largely calmed down from overhyped fears that the passage of tankers through the Strait of Hormuz could be disrupted. Look back to the Tanker War in the 1980s, no one would want this, but it didn’t stop the flow of oil anyway.

Markets took a moment to recalibrate today, following last night’s major dump on the story that Israel would not strike Iranian oil. Brent flat price crossed into the 73 handle we’ve been awaiting and closed the day at $73.73/bbl. Today had another very offered window as the Dated Donkey keeps getting smacked. BP, Glencore and Total offered down Ekofisk, while Shell and Glencore offered Forties, with Glencore offering a mid Nov Forties down to +46c over Dated. The physical diffs got spanked, from +$1.05 on Friday to +46c yesterday, and took another pounding today. The whole CFD curve slumped into contango, with balweek falling 54c from yesterday to -31c. Next week’s CFD fell 49c on the day too to -51c.

Traders live and die (financially) by the sword of their decisions. And it has been like this: hear War, buy! Hear Peace, sell! Hear economic news, hmm change that channel and let’s watch the War TV station. Here come the rumours… like Netanyahu promising not to hit Iran’s cities, nuclear plants, nor oil installations. (Can you trust him?) And the overbought market faints. Brent prices correct to the $73+ level. The drop sets the stage for the next uptick and just in time as Israel sort of denies any of the above. It is a ride with certain outcomes. The main players’ economies are facing headwinds and commodity prices reflect that from iron ore to oil. Geopolitics is red hot and any shooting will invite more shooting and this means, buy. But, but, but, the US does not want any shooting and neither do Europe’s main actors. They are financially too wobbly and the US elections means pressure on Israel not to shoot. Make your bets, people, but the outcomes are clear.

The Dated Donkey got whacked, and all the candy fell out. If you are short! The North Sea window was super offered with Glencore, BP and Totsa all trying to shift North Sea grades, and values got smoked! Incinerated really, and almost back to where the values should be if the market is long, which it is! This was very evident with the offer price of Forties. Glencore offered Forties down to +$0.75 over Dated, far below Gunvor’s bid at +$1.15 on Friday. Gunvor where are you when the Dated Donkey needs you? BP also piled in and was offering down a CIF Ekofisk to +$1.80 over Dated. Totsa didn’t miss out on the action and jumped in, offering down a FOB Ekofisk to Dated +$1.25, far lower than BPs offer for +$1.95 over Dated on Friday. But no one found any takers. According to traders, “the physical diffs got smoked”, falling to around 50c from over a buck on Friday. This week’s CFDs got demolished, falling from 47c before the window to just 7c after.

After losing steam on Friday, Dubai is starting to shed some of its physical premium. Trafigura and fellow sellers in the window are back in control. Totsa couldn’t grab enough partials to keep the physical premium above the $1.68/bbl average this month, shedding 18c since yesterday. BP, Phillips66, and Exxon were keen sellers, with Mitsui and Totsa on the buy side. Mitsui’s bidding did land them a cargo of Upper Zakum following convergence with Trafigura for the second convergence this month after Totsa netted another Upper Zakum from Exxon on Friday. The physical differentials are coming in below the current month average and also below September’s average. But a trader still considered them strong as the markets are heavily backwardated. ‘All this talk about a weak China and a softening economy is not doing much to the price,’ he said. ‘The more nothing happens, the more nothing happens,’ said another trader. ‘It was a soft start for dated as well, prices are soft but nothing much is happening,’ he concluded.

Nobody seems to want to hold any additional risk going into the weekend. Price action looked as flat as an ironing board throughout the day, oscillating safely within the $78/bbl range. ‘It was soft day since the morning,’ said a trader. ‘Some people were selling the end of October period, I think that’s where the action will be,’ the trader added. But otherwise the market was dull with minor up and downs, until Brent finally broke through the $79/bbl level shortly before 15:30 BST. It stalled just below the $79.50/bbl mark and closed at $79.14/bbl.

Dubai’s physical premium remained almost unchanged, just 1c up at $1.84. Dubai’s run out of steam after the mania of the last couple of weeks while everybody’s been running about like headless chickens on RedBull. This morning, paper has been “like watching paint dry” for traders who are, in some ways, glad for a hiatus in the carnage of recent weeks. In crude, in products, it doesn’t matter, everyone’s waiting with bated breath. We’ll see if that tranquillity lasts or if Middle Eastern belligerents decide to kick up a ruckus again. It’s a tense atmosphere as everyone waits for Israel’s next move.

All the traders and even we are kept waiting for Israel’s ‘decisive’ action in response to Iran’s missile bombardment. Words come easily, but the situation is difficult for Israel, countries in the region, US, Europe and everybody. Honour and pride demand a powerful reaction by Israel, but a non-emotional approach coupled with practicalities such as not stepping on American toes prior to the presidential election weigh heavily. We’ve learned to be patient following avowals of retribution and retaliation in the Middle East. In any case, the market just can’t get the idea out of its head, and this anxiety sent Brent back towards the $79/bbl mark.

What’s gonna happen? Where are they going to bomb? When? Suddenly all the traders and analysts turned journalists, asking all the questions that start with a W. Biden, Kamala and Netanyahu had a chat about what, who, where, when and even how, while rain drenched Florida ahead of the landfall. Needless to say, the US administration’s heart and mind was not into anything Iranian and Israeli, while the political risk of being accused of caring more for non-citizens could weigh heavily in the upcoming elections results. The US ‘affirmed its ironclad commitment to Israel’s security,’ but there wasn’t much beyond words saying ‘the president emphasized the need for a diplomatic arrangement.’ In other words, ‘don’t do anything silly that threatens the election.’ Israel’s defence minister Gallant said the response ‘would be lethal, precise and surprising,’ but we think short-term escalation is very unlikely. Yet the market lapped the words and prices went above $77/bbl. But the underlying sentiment is not overly bullish and subject to another downward correction.

Fears of a world conflagration rattle people like us as Israel seems to be inching towards a fateful decision. Netanyahu had a call with Biden and Kamala over the next steps, as we would say in business, after preventing his own defence minister from going to the US for the meeting. Prices bottomed out at around 15:20 BST at slightly over $75.00/bbl. And then the market turned bull. Here came out the guys ready to pounce back on the short and make some money, money, money. This afternoon, prices peaked at nearly $77.00/bbl, which in the big scheme of things is not too much. But this didn’t stop a trader from having gold glitter in his eyes, ‘It is going to $80/bbl,’ he said exuding confidence. War or peace and market forces will decide. If we use or abuse logic, we could say Israel has the plans and equipment to bomb and is waiting for the US green light. So, if they got it, tonight is the night for fireworks. Oh dear. And if they don’t, some de-escalation will start to happen. This is all our internal speculation, but we want to share it.

Flat price was indecisive and choppy since yesterday’s selloff. It doesn’t know whether to go up or down, as forecasters and analysts debate, ever more noisily, the conflicting geopolitical and macro forces and their effect on prices. Banks and analysts preach about risk or bad macros sparking suspicions of words supporting trading books or even OPEC or government narratives. Just in case the question arises, we, The Officials, are data driven but we acknowledge market sentiment. At the moment, macros are awful and point down, and geopolitics are nasty and point up. Any price rise further harms the macros. Over time the two will converge and we suspect prices will come down.

The Big Barf in progress. Poor longs, they got overextended and the bears made minced meat out of them. We were well into the $79 range with Brent flat price, then America woke up, said ‘that’s too high’ and sent the flat price tumbling. It got thrown down the staircase, bouncing down further into the 70s. From $79.41/bbl at 14:05 BST, it fell to under $78/bbl by 14:53 BST. Optimism over China’s monetary policies combined with fears that Israel’s retaliation could unhinge a wall of fire on the Strait of Hormuz and threaten the supply of over 20 million b/d day made for a very fetching bullish story. But traders always get overextended, don’t they? And then scepticism grew over Israel’s abilities and China’s rebound. And then prices fell, eliminating a portion of the risk premium. Brent touched $78/bbl and despite some temporary support, it took another massive dump all the way down to $77.00/bbl and has been hovering above this mark. More to come? Certainly; it broke through $77/bbl just before the window and closed at $77.08/bbl. Hope the longs brought their barf bags. It’ll be tricky to keep breakfast or dinner down in such turbulent conditions.

Watch out really for the possibility of the price balloon popping. Prices went up on China and thoughts of Israel bombing
oil installations and other dangerous things. And so far both look like a limpid wet noodle. Brent flat price has been
floating high, but the market is starting to feel heavy. Prices had been buoyed by fears of Middle Eastern conflict and
hopes of China’s “fiscal bazooka”. But China’s failure to turn up was confirmed by today’s National Development and
Reform Commission (NDRC) press conference. It also looks unlikely that Israel will disrupt Iran’s oil activities – if it wants
to keep getting presents from the US and UK. If further escalation fails to materialise, there may be a day of reckoning
coming for markets. If there’s no military action, expect bears to come out of hibernation and savage the beleaguered
bulls. It may already have begun; traders noted a pivot in the market yesterday. The window was still busy, though. Exxon
regained its position as the big seller. There was a sea of ‘Exxon sells’ and ‘Totsa buys’, while numerous others came in
for the party: Vatman and Gobin started flirting again, and Trafi sold sporadically, while several others joined in too.

He finally broke through. Brent flat price eventually ploughed through the $80/bbl resistance level at 16:21 BST after
testing the waters several times. It jumped suddenly to near $80.20/bbl. Likely many stops just above $80/bbl were
triggered and some longs probably took profit, which saw a slide back towards $80/bbl. A second wind took Brent
even further up shortly after the window, and it peaked at $80.84/bbl at 17:01 BST. Lennie believed the geopolitical
risk premium had run its course and markets were ready to snap back to reality with weak macros and refinery
maintenance. His short position isn’t looking healthy this evening and we imagine certain money managers are also
in the lifeboat alongside him – as we noted this morning, many remained positioned short facing a rising tide! And
the shorts are now underwater. The longs are ‘hoping’, and that is a sad word, something bad happens that creates a
short at the expense of lives. Regardless, some operational tightness is expected as Iranian loading ships reposition.

The market rose strongly in the London morning and Brent flat price almost touched $80.00/bbl, just a shade below, not quite ready to turn tail. Clearly traders were skittish of buying at too high of a level and then holding the bag in the face of weaker macros. Technical traders were licking their lips looking at indicators that said too many hedge funds are short. And a Middle Eastern producer was also pointing to the vacant Kharg Island, as the Iranians decide the area could get hot. Some disruption is expected to Iranian loadings as the prospect of aerial or even naval attacks permeates the region. The market rose from early morning peaking at $79.94/bbl at 11:18 BST. A couple of assaults on the $80 ceiling were held off before 12:00 BST. We thought we’d left the 80s in August but, like mullets, they’re coming back. Some traders balanced the thought of an attack versus a rapid correction of at least $5 if nothing happens. A quiet window saw Totsa and Mitsui keep on buying the odd partial, while the sellside was divided between Hengli, Trafi, Repsol and Phillips. No partials were traded in the last 20 seconds. Traders are showing their caution in the current context.

The EV situation doesn’t look great for anybody other than the Chinese. US Rivian has lowered its forecast for 2024 production by around 10,000 units due to a shortage of parts and lacklustre EV demand – see also major layoffs by Northvolt, Europe’s biggest battery maker, in late September. The company’s stock price has fallen by 46% this year, including a near 10% fall this week alone. And Europe just can’t keep up with the EV competition, so the EU is building its defences like a child at the beach building a desperate wall around a sandcastle as the tide comes in… still more effective building than the continent’s construction PMIs, with France’s 37.9 really taking the biscuit, the steepest contraction in the sector since 2015, excluding COVID. The Olympics mirage is gone and reality kicks in.

Fear is gripping the market! Several more sharp spikes late yesterday and this morning sent Brent flat price beyond the $78/bbl ceiling, for the first time since 30 August, well above the low 70s we had become used to seeing throughout September. Dec $100 calls stood at 5c at the start of Sep and are now at 82c. Those who were in early will be rolling in it. Brent really outperformed Dubai again and the Brent/Dubai spread opened up further to 38c, a growth of 15c since yesterday. People are hands off on Dubai; according to our sources, physical tanker freight from the Arab Gulf into Asia fell $3.00 since news of the Iranian bombardment broke. We’re still waiting to see what happens next…

Skittish like a nervous horse. Markets are jumping and fretting at the slightest signal of supply disruption. And supply disruption could be gigantically bad if the never-matured teenagers prevail over the brains. The reports that Biden was having discussions with the Israelis regarding strikes against Iran’s oil facilities provoked a burst upwards in flat price. Within a minute, the price jumped from $75.98/bbl to $77.57/bbl! Remember the $100 call data we mentioned in this morning’s report? Well, open interest jumped again, while Brent flat price surpassed its 50-day moving average for the first time since July. Markets are incredibly jittery and sensitive to any headline coming out regarding the region. And $100 could be cheap if the Strait of Hormuz and the Strait of Lamentations (apt name ) become collateral damage in the fear boom boom. Please watch the latest ‘The Officials’ podcast where we go into the savoury details.

Fundamentals are finally asserting themselves. Dubai has been defying gravity for a couple of months as consumer demand softens in China and other parts of Asia, while some producers in the Middle East (wink wink) exceed their OPEC production ceilings. At the start of October, average Dubai physical premiums have tumbled from their high levels in September, down to an average of $1.52/bbl, so far this month. Having remained so elevated through last month, we expect Dubai OSPs to Asia to come out stronger, somewhere in the region of $0.80-$1.00 up. But Iran’s up first, publishing its own OSPs for November and it’s been chopping harder than a hyperactive lumberjack. The Islamic Republic reduced the Iranian Light crude by 65c/bbl to +$1.70/bbl, Heavy by 65c/bbl as well, down to +$0.15/bbl, Forozan Blend is cut by 40c/bbl. Pars and Soroosh grades were both cut further into the negatives: the former cut by $1/bbl to -$1.95/bbl, and the latter to -$2.95/bbl from -$2.75/bbl. This looks like a realisation that the once golden child of demand growth, China, is having a Golden Week in an otherwise messy year.

The market is on tenterhooks running up or down with the latest rumours. Everyone’s holding their breath after yesterday. Brent held firm in the mid-70s range throughout the day after yesterday’s Middle Eastern confrontations, on the expectation Israel would retaliate and fears the conflict could escalate even further, although Brent eventually loosened marginally to close at $73.83/bbl. This geopolitical risk premium now seems to be baked into the price and will likely remain until Israel fires and we get to reevaluate positions., Should direct war break out between Israel and Iran, some have posited that Iran’s key oil export hub, Kharg Island, could be attacked, which would disrupt around 90% of the country’s crude exports. This could also endanger the crucial Strait of Hormuz, through which exports from Iraq, Kuwait, Qatar, Bahrain etc sail… Essentially, oil flow would imperilled for everyone in the area. Strangely, most big guys The Officials’ met in Fujairah are strikingly resigned to a bear market. 60s, if not 50s, hung in the air. Annual growth may not be more than 600 kb/d and if Saudi Arabia pumps the volume 😵 then it is a good fight!