There was an election across the pond last week, but it would be quite a feat of mental gymnastics to immediately connect the results with the Dated Brent market. Yet, the ramifications of Trump’s re-election may have significant implications for Atlantic Basin fundamentals, as we detail in today’s Onyx Alpha trade ideas report. Maybe not quite ‘drill baby drill’, but ongoing growth in US crude production and exports will likely weigh on the WTI/Brent spread, and further weigh on the Dated Brent physical. But in the meantime, the market continues to be topsy turvy. A US physical player has been eager to lock in this arb and fixing their paper deals ahead of time. The HTT (WTI Houston vs WTI Trade Month) has been locked in, alongside the WTI/Brent and freight. Basis risk remains, so we can expect 2025 DFLs to be sold at anytime to complete this process. Indeed, the arb of the deal. Lock in.
The physical market has been relatively balanced. The key takeaway from the Dec’24 Brent futures expiry was Gunvor’s key role on the sell side. Unsurprisingly, they have been a key seller of cargos this month, alongside Mercuria. Meanwhile, PetroIneos are still in Halloween mode playing Trick or Treat with North Sea characteristics, scooping up their 8th cargo on the 8th day of the trading month. Lucky 8 mate! With freight rates coming off, US players like P66 have been offering WTI Midland in the window. Glencore was seen lifting an Ekofisk cargo from Eni. Will they continue to buy or was this just a one-time thing?
A Geneva trade house has been a notable short in the CFDs, perhaps keeping the paper print low, but every week is a different story. Back-end Nov weeks have rallied in anticipation of a physical rally. Meanwhile, prompt structure sold off quite heavily on 11-15 Nov vs Cal Dec selling. Another notable flow has been the Bal-Nov’24 and Q2’25 DFL which have been trading ‘bigly’ – 15mb buying in the former and nearly 2mb in the latter. The Dec/Jan DFL has also been well supported around 15-20c/bbl, with structure holding firm despite Brent spread weakness. That’s saying something.
Going forward, we see good risk-reward in going long in the 16-20 Dec vs Cal Jan. Indeed, Dec Dated structure has proved to be extremely resilient despite the sell-off in Brent spreads. Should the physical and Brent spreads recover higher, then this bullish sentiment should filter down the curve. All of this is assuming that WTI Midland does not flood the market. We are also keeping our eyes on the Brent/Dubai, as any narrowing of that spread will open sesame and help clear local grades into Asia. With expectations on China issuing additional quotas on its crude imports, which have to be fulfilled by New Year’s Eve, there is only One Direction for the cargos-to-go.
