The Official Reports

The window showed no transactions at all, hardly surprising given expiry. The stalemate left physical diffs unchanged
from yesterday at around 65c. While the big guns in the North Sea kept quiet, avoiding a reenactment of trench
warfare, where nobody wins. But the fun for past deeds continued, if you are an observer and not a participant of
course. This time it’s an ex-Gunvor employee (unnamed due to Swiss legal requirements), who is facing allegations
of corrupting officials in the Republic of Congo in exchange for oil contracts. Prosecutors allege that the defendant
was involved in payments worth more than $35 million in 2010-2011. Court proceedings began today in Swiss court.
Do note that Gunvor itself is not involved in the legal proceedings. That’s how it goes.

What a month September has been. We had rumours of OPEC releasing production, then deciding not to. Libya cut off production, now it’s bringing it back to market. We had Middle East flare ups, culminating in the killing of the Hezbollah’s leader, but radio silence from Iran. Weak Chinese demand remains a prominent fixture, with three Sinochem bankruptcies so far, but physical markets suggest there’s still strong demand there, or perhaps just SPR buying. Flat price was choppy, with APPEC’s realisation of poor fundamentals being met by bouts of short covering as money managers panicked about their record short positions. On the 17th, Brent fell to $68.98/bbl, the lowest in since December 2021. Dubai has been the outperformer, averaging 23.5c over Brent through September. Physical premiums in Dubai have remained very strong all month, averaging $2.03/bbl.

The Chinese financial bazooka arrested the crude oil slide into the nether 60s or lower, at least for the time being. The Chinese came out in force, fired their money showering guns several times to prime a recovery in their dented economy. So far it has worked. Stocks went crazy, going up nearly 15% in a week, Xi Jinping you are a generous man – please give us some money too! He gave money to his neighbours, with stocks in South Korea, Japan and as far afield as Singapore going up. The power of money! (even if it is funny printed stuff) In the real economy, the authorities lowered the investments thresholds to ensure citizens bought more houses. Iron ore went up as short hedge funds said, ‘oops, we made a mistake!’ They covered their shorts in a hurry. Some strange but explainable behaviour was also seen in Dubai, which soared above Brent. Hey, China is buying so buy anything going to Asia.

Wowza! China fires the bazookas!!! Dubai physical is pricing strong; premiums reached the highest since we began tracking at $2.43/bbl, up over 30c from yesterday. Dubai is powering up higher than Brent. Traders are highlighting many conflicting drivers: more Libyan crude supply is technically bearish for Brent and for the spread versus Dubai. Saudi rumours of more crude supply are bearish for Dubai but bullish for the spread. And then the Chinese come in, throwing everything including the kitchen sink to prop up the economy. The politburo won and any bear was crunched. Dubai continued to rise over Brent and the Dubai structure strengthened. Iron ore and the Asian stocks markets were on a run as well, happy times are back!

CFDs for this week have taken quite a hammering through since yesterday lunchtime. They have signalled a very belated realignment of physicals and futures as values have been quite apart for months. In the North Sea, PetroIneos continued its offering, after flipping sellside yesterday – see if you can spot where they jumped ship! Today PI was flogging a Brent for Oct 20-22 at Dated +70c, chopped down from +$1 yesterday. And hmm… wasn’t it PI who picked up
that Midland from Trafi at +$2.75 on Monday? How odd. We really wonder what happened there. Salmon isn’t the only
fishy smelling thing coming out of the North Sea or the Gulf Coast with the Midland thing. Exxon also offered a mid-Oct
Forties at 70c over Dated. Markets consolidated after this morning’s dump, rebounding around in a range throughout the
day before closing at $72.23/bbl. You get the feeling that markets are clinging on and trying their best to climb back up, but the slide downwards is inevitable. This is another rung down the ladder towards the 60s.

Scary times in oil. You have a mega Chinese stimulus, Fed rate cuts, hurricane oil shut ins, Chinese buying for the reserves and… the price tanks! Oil is very macro and is not responding to half measures. The ‘macro guys are dominating the trade,’ said a derivatives trader, noting that Dubai physical was pricing strong, but the flat price was giving way. And way it did, bottoming out at $70.78/bbl before having a temporary bounce to $72.44/bbl. ‘This market wants to test something starting with a six again,’ said another trader. But it was a perplexing time. Chinese stocks soared bringing up the Shanghai index up to 14% since the stimulus, other indexes were up over 10%, and HK’s Hang Seng was also up similarly. But onto more ‘real economy’ type. An iron ore trader said excitedly, ‘the ore has gone up ten percent, and also rebar!’ Some green shoots are there but they are not evident in oil.

Barfing Boris is at it again and flat price dumped again. There was a massively ‘constructive’ EIA’s inventory release,
but the market chucked the barrel down the stairs. The window closed at $74.67/bbl, relatively near the $75.25/bbl
high of the morning. But then Brent swooned, falling to a low of $73.07/bbl by 17:22. As we noted earlier, $72 was more likely than $77 and we are almost there. So, why did the market fall? Besides the awful macros, we had the Libya
effect. Markets apparently hate the prospect of peace and love and dumped oil as warrying factions in Libya were
finally together and agreeing on an interim central bank chief: Naji Issa. Can this (un)fortunate fellow keep the warring
factions in line? Only time will tell. But the reality is a bit simpler. All the factions need money and the only way to generate it is to sell oil. If they fight, they will still find a way to sell. Going long on Libya is a fool’s errand.

Today’s window was like a primary school sports day where everyone gets a medal or a cargo, and Upper Zakum at that; we got four convergences! That’s more than any other session so far this month. Longs and shorts clashed with equal enthusiasm with differentials only changing marginally. So much effort to keep the price contained one way or the other. Mitsui and North Petroleum were the buyers, as ever, and Exxon and Trafi kept selling. North Petroleum took home a convergence from both of these mighty ones, while Vitol and Mitsui each got one from Exxon. Traders were expecting a Murban cargo to be delivered as prices fell briefly on IFAD below the physical Dubai, but nothing of the sort happened. Murban recovered after that brief dizzy spell. By our counting that makes 7 convergences for Mitsui, which is streaking ahead of North Petroleum and Vitol, who have only got 3 so far. So, what’s Mitsui up to? Last month sources alleged that they were working with PetroChina on the buyside. This month we have not heard anything we could repeat. If all this oil is going to China, it wouldn’t be refined anytime soon. No quick recovery is expected as wealth has been destroyed by the plunge in property prices. A source shared a chart displaying the fall nearing 30% from the highs, but some Chinese sources say in some areas is as bad as 60%!!!

Today’s window was quieter than yesterday’s head scratcher, although there were still some pretty pricey cargoes up for grabs. Mitsui offered a Forties CIF for Oct 16-20 at Dated +$2.10. Conoco lowered its offer of an Ekofisk for Oct 17-22 to +$2.20 over Dated, down from its Oct 19-21 offer at +$2.55 yesterday. Everyone’s being all strait laced today after last night’s debacle.

For evidence of how dire the global construction outlook seems, look at how pessimistic JCB is in its annual earnings report despite bumper profits. JCB reported a £6.5 ($8.65) billion turnover, with a pre-tax profit of £805.8 million. This constitutes a gain in market share and a 14% y/y increase in sales, but the company is very gloomy about the remainder of the year as economic activity is contracting fast: JCB is concerned by “challenging” conditions in its European market that will make replicating this annual success rather tricky. At least the diggers have other uses. The UK’s contracting housebuilding sector is a danger to company profits, while Germany’s economic decline is potentially an existential threat.

A busy and rather messy window. We like it. Traders and majors pushing and pulling Dubai. Sometimes value was even given away, with sales or purchases done up to 10c away from the last transaction and without offering or bidding incrementally. Our assessment filtered out the naughtiness and we closed Dubai at $74.85/bbl. Trafi installed itself firmly on the sellside again, alongside the month’s regular player: Exxon. They have a firm view on the market being long and refining being tired. We don’t disagree with the fundamentals, but today we felt very bullish on flat price after the Chinese did their thing. Markets do change, even if temporarily. Mitsui and North Petroleum remained the main buyers, feasting on almost all Exxon and Trafi had to offer. Gunvor was left picking up the crumbs that fell from the table with a partial from Trafi. Mitsui netted yet another cargo, an Upper Zakum, from Trafi this time. Aggressive selling looks to be paying off, as physical premiums fall to $1.81/bbl, the lowest so far in September.

Hmm, odd way of trading, very odd indeed. What are Trafigura and PetroIneos up to? One may ask very innocently. Let’s look at the data. Only Wednesday last week, this week’s Dated Brent implied differentials were trading at around 85c. But one may also say that diff was merely an expectation that must be validated by reality. But then reality can be distorted, can’t it? You decide. Trafigura opened the physical North Sea window – a misnomer but never mind – with your favourite grade that solves all Dated problems, or so we heard, Midland. Trafigura offered an Oct 18-22 Midland at Dated +$2.80. A smidge high, we would say. The early offer time of 15:44 BST piqued our curiosity. The offer was subsequently lowered to a premium of $2.75/bbl. PetroIneos obliged to such an attractive high offer and bought the cargo! This high number blew our socks off and we think everybody else’s too.

Things in China are bad, as macro signals remain negative with youth unemployment up to 18.8%, according to the most recent data, and the mighty party just engineered a cut in interest rates. Europe is not much better, with Germany unsurprisingly contracting in the industrial sector, as the economics minister is wondering how to bail out carmakers.

The oil markets felt squishy, like a punch-drunk boxer in the final round of a losing bout. Hmm, the analogy reminds me of a former presidential candidate, but we move on. Crude’s got that Friday feeling. Sadly, it’s a dreary, heavy feeling going into the weekend being glad that the week’s over time to rest and see if the recent gains can be consolidated. Prices have done well since Power Powell waved his magic wand. But since Q2 this year, in US sessions crude has only had two Fridays that were up by more than 1%, so there really is the sense it’s just making it to the weekend rather than thriving at its day job.

Well, it looks like Dubai couldn’t hold on much longer after all. Physical premiums shed 42c in just 1 day. And Dubai’s premium over November Brent futures flipped back into negativity. Brent futures are back in top spot, closing 21c above Dubai partials. Dubai front spreads dumped 33c from $1.44 yesterday to $1.11 today. Despite this, Dubai’s structure is still strongly backwardated, with strength down the curve. But to us, as Powell likes to say, “the direction of travel is clear”.

High level, never bet against the Fed, vibes traders got it right. Back to more parochial but important things…Dubai has managed to lead the pack in recent sessions, after struggling through July and August. But are we seeing that start to slow? Dubai’s premium over November Brent futures eased slightly to 41c, down 11c on the day but still comfortably within its elevated September range. On a premium basis, Dubai is still very much in fashion; physical premiums rose to $2.30/bbl! Is Dubai starting to get too expensive? Not for Mitsui and Northern Petroleum by the looks of things.