The Official Reports

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.