The Official Reports

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.

Today is the day. It’s D-Day for the Fed and our resident macroeconomic enthusiast has been counting down the days like a nine-year-old excitedly opening his advent calendar in the lead up to Christmas. Hey it is money, real money. We all want some of it even if it’s fake recently printed paper money. The 25-50 debate will finally be settled when Power Powell unleashes the full force of the US economy, unshackling it from its restraints. The world needs decisive action from the big dawg. The market seemed nervous today, hesitant to jump for joy at a big cut, as though it was scared to be let down. Yesterday it seemed it was forecasting a nice cut but today the behaviour was desultory. Continuing fall out front the pager blow outs has not impacted the market even though the mighty Houthis have now threatened any Taiwanese ship in addition to those linked to Israel. The world keeps getting gummed up due to military and economic fights. Time to sit down folks and recognize no side can truly win.

Physical Dubai markets are holding strong, with Dubai partials pricing 52c over Brent, and today they set yet another record for the highest physical premium we have tracked since starting the Officials at the beginning of June at $2.26/bbl! These are expensive barrels, and with demand so rock bottom in Asia that some refineries are filing for bankruptcy, we ask what is driving this strength in Asia. Reliance was more active on the sell side in the window today, alongside Exxon. It smells like more run cuts in Asia to us, but who knows? The regulars were on the buyside, with Mets hungry as ever, netting themselves two convergences. One Al Shaheen from Exxon, and another Upper Zakum from Reliance. It’s like last orders at the pub, with that one drinker keeping on about ‘just one more’ to the bartender. NPI and Vitol also picked up a couple partials.

All eyes are on tomorrow’s FED decision on the 25 or 50 bps interest rate cut. In the meantime, iPhone warriors fight in all economic arenas about the size while having zero influence on the outcome. In other words, it is all words and we’re all talkers. But what does 25 or 50 bps mean for markets? If the Fed cuts the full 50 it’d be happy times as the immediate effect is lowering of business and mortgage cost. One could argue this is not bullish, as the FED had to go big. But those are fine details for the bearded pipe smokers. The average Joe will love Powell.

What is Mitsui, big buyers of Dubai partials, up to with all its oil, given Chinese teapots are dropping like flies as margins get crushed? An exaggeration we know but two teapots are down. The situation is awful and we are reminded by another data point. Vietnam’s exports of cement into China are down 90% as construction is flat on its back. Cement is very highly energy intensive and so is construction itself. You know where we are going with this…diesel is
impacted very negatively. The front month Arab Gulf 321 crack is creaking under the strain, down to $5.66/bbl from its February peak at $19.35/bbl! Dubai physical premiums continue to climb and are at the highest since ‘The Officials’ began tracking the data. Premiums are at $2.12, up by almost 10c from yesterday.

The upper 60s came and went, with the initial negative narrative being overtaken by ‘it is not so bad and we are going to:’ 75, 77, 80 or even more. Take your pick. But the macros have not changed and, if anything, they are a wee bit worse and everything works at the margin. So be careful. In flat price the story has been pretty directionless to stronger. A random walk along the flat price chart saw a slow morning, before picking up steam into the early hours of US trading. According to traders, Exxon has been selling alongside Chevron, a Team America defector, and shortly before the window they may have got their way, with flat price and spreads both easing off. As flat price reached the day’s peak at $73.31/bbl, Brent front spreads peaked at 66c just after 15:00 BST, before shedding 8c to close the window at 58c. Further down the curve, little changed. But the short end remains strong. One trader said, “we are no way oversold or pricing below where we ought to be”, even despite the historic short positioning in managed money. But for every short, there is a long, so…

It’s the positioning in Brent contracts that is really intriguing this morning. Managed money net length in Brent futures contracts, according to ICE COT, has turned negative, marking a historic shift in sentiment on the long/short seesaw. For the first time since the data began being collated, some of the shorts are outweighing the longs. The composition is clear with -33.7 mb net short for the week ending 10 Sep. Shorts look a bit saturated…

Flat price has largely shrugged off APPEC’s bearish consensus; the market was overly short, really. Flat price and spreads all gained through the backend of the week and traders reported that next week, they’re “not really seeing any selling”, but they followed up that the two subsequent weeks have lots of selling. In short, the market is backwardating. Let’s not understate this: implied diffs are $1.30 for next week, little changed from where we are now, but the week after, they’re pricing 80c!! The market is teetering on the clifftops, Kennie had better have his parachute. There’s still plenty of trading time, so who knows? Nobody…

Saudi allocations to Chinese refiners for October have jumped. Before we get into the details note the increase is in sharp contrast with the output stability narrative by OPEC. Key question to Saudi Arabia: if you are not hiking production, why are you increasing allocations to your customers? According to sources, Unipec got 14.5 mb for October up from 11 mb for September. Rongsheng, the favourite of the bunch, remains the primary recipient, at an unchanged 16 mb. These two take the lion’s share of supply. Total allocation grew to 45.5 mb in October, from 43 mb in September, just shy of the 3 mb increase we expected. As we’ve been saying, China doesn’t need much crude to fulfil its ailing demand, so where is this all going?

Blimey! Brent’s surge into the European close burst up beyond the last few days’ levels to carry us firmly back into the $72/bbl range. The bears went too deep into enemy territory and now they have to pay up! The super-short market will be feeling the pinch from this afternoon and we’re sure some will be kicking themselves for jumping on the bandwagon of $60 Brent too early.

Nov Brent futures premium over Dubai partials has inverted in recent sessions, with Dubai, “oddly outperforming” according to one trader. Today Brent reclaimed some ground. Weak macros have failed to shake prompt strength out of Brent; front spread rose to 53c of backwardation. Consensus from APPEC was overwhelmingly negative, OPEC let a little air out of their ballooned demand forecast, and today the IEA revised down their demand forecast for 2024, it’s not a pretty picture. With very few trading months left for 2024 oil, where is the strength coming from?

The signals for emerging surplus are coming in. Everywhere you look the curve has flattened. From Dubai to the North Sea, benchmark grades are struggling to muster even the slightest backwardation. The flattening has been particularly acute in Brent. Yesterday time spreads down the curve dipped their toes into a bearish contango. At 76c, Dec/Dec spreads closed the weakest in over 3 years. Compared to three months ago structures are starkly different.

The signals for emerging surplus are coming in. Everywhere you look the curve has flattened. From Dubai to the North Sea, benchmark grades are struggling to muster even the slightest backwardation. The flattening has been particularly acute in Brent. Yesterday time spreads down the curve dipped their toes into a bearish contango. At 76c, Dec/Dec spreads closed the weakest in over 3 years. Compared to three months ago structures are starkly different.

Traders were hoping for a quiet day going into the weekend but instead they got a comatose or nearly dead oil
market. At 15:00 BST Nov Brent stood at a consolidated $73.40/bbl, slightly above its level at yesterday’s close.
Then, however, markets went into freefall. Within the hour, Brent had toppled down by almost $2/bbl, to around
$71.50/bbl. Disastrous Canadian PMIs? Americans selling off? Or just the dour macros weighing down
everyone’s souls? And then in come the Saudis, slashing their monthly OSPs across the board for October
against the preceding month’s differentials. All grades into the Med and Northwest Europe received 80c cuts. In Asia, Arab Light and Medium took a 70c and 80c hits respectively, while Heavy was slapped with a full $1 cut.

Traders were hoping for a quiet day going into the weekend but instead they got a comatose or nearly dead oil
market. At 15:00 BST Nov Brent stood at a consolidated $73.40/bbl, slightly above its level at yesterday’s close.
Then, however, markets went into freefall. Within the hour, Brent had toppled down by almost $2/bbl, to around
$71.50/bbl. Disastrous Canadian PMIs? Americans selling off? Or just the dour macros weighing down
everyone’s souls? And then in come the Saudis, slashing their monthly OSPs across the board for October
against the preceding month’s differentials. All grades into the Med and Northwest Europe received 80c cuts. In Asia, Arab Light and Medium took a 70c and 80c hits respectively, while Heavy was slapped with a full $1 cut.