The Official Reports

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.