The Official Reports

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!

The direct missile attack by Iran against Israel yesterday afternoon sent markets haywire. Brent peaked at about $75.40/bbl, at around 18:05 BST yesterday. It cooled off later in the evening to below $74/bbl before building back up overnight and into this morning to close Asian trading at $75.10/bbl. Expect more to come if the conflict escalates further. The consensus seems to be that approximately 180 missiles were fired in the bombardment, but reports are conflicting. The IDF figure matches this number.

The Middle Eastern geopolitical risk premium isn’t entirely impotent anymore, it fires! Iran has shown its ability to send the world into a panic with mere whispers of missiles and bombardments on Israel. The US said it had deployed additional aircraft squadrons to the region, making the announcement almost simultaneous to the breaking of the rumour of Iran’s impending fury, which came shortly before 18:00 BST. We saw last week with the story of Saudi Arabia abandoning its supposed $100/bbl price target how headline-sensitive the markets are. ‘It is clearly the Americans releasing stuff,’ said a source, not entirely sold on talk that the world was coming to an end.

Brent teased us for ages, flirting with the $70/bbl floor, touching the $70.00/bbl at times, finally breaking through at 10:11 BST, only just touching $69.99/bbl for a few seconds before bouncing up back towards $70.50/bbl again, but the market direction is clearly set. It feels like Brent is clinging by its fingertips to the desperate $70. The market is stubborn, he’s repeatedly teasing the six handle but is treating us mean to keep us keen. By 11:20 BST it seemed to have propped itself up on a creaking wooden crutch and held at just over $71/bbl. Expect more to come, but the road down the edge of the cliff is never a smooth ride. After the dip and bounce were all said and done, the price had fallen from just over $71.70/bbl to below $71.20/bbl, and despite all this flat price action, the curve barely moved, so things look to have settled back down.