The week was relatively quiet, oil was changing hands at modest premiums, though showing some signs of exhaustion but trading thin, then we woke up with a FT article that pretty much send the market into chaos. I won’t dig into the FT reporting practices, but this was a weird one, the article was full of speculations and hardly any substance, and the timing was also dubious since the news in itself wasn’t anything we didn’t know already. I felt more like a PR stunt to test the waters and see how much of this cut reversal might be priced in.
What is important from this event is, if the market can shred 2 dollars on just a headline, then something is clearly wrong. Consensus is building around a structural weakness coming Q4, the lack of “long” bets, low positioning overall and not enough positive catalysts (geopolitics doesn’t pay anymore) are sending this market that is used to trade in chunks of 10 dollars, to the next box lower (60s to 70s) but if I learned anything in all these years is what market does to consensus.
We are still walking on thin ice when it comes to volumes traded and positioning, and not just only for “Managed Money” but for commercial hedgers as well, although there is some interest in the airline sector trying to lock in these Jet prices specially in Asia where Jet/kero is abundant. East/West arb (Singapore vs North West Europe) is wide open, likely to entice western buyers. Bunker fuel is also getting some attention from shipowners, though fuel oil looks somewhat expensive in relative terms.
We also had an OPEC summit in Rio de Janeiro, where they revealed their forecast for the next 20 years, projections are not short in optimism. We are looking at an average 1 million barrels per year constant growth throughout mid century. Hard to buy when they are missing 2024 forecast for 2Mbpd. Also interesting to see what other agencies and even oil producers are forecasting for the same period. Divergencies are wild, but we are used to that with OPEC. With all the mishaps in the last two months, OPEC should focus more on the present day and try to line up the ducks.
OPEC's crude oil production at wellheads fell by 210kbd in August, reaching 26.61 million barrels per day. But this decrease was largely due to disruptions in Libya's supply, along with slight production cuts in Saudi Arabia and Iraq, which offset gains in output from West African nations. At the same time, the nine OPEC members of the OPEC+ alliance increased their production by 90kbd, bringing it to 21.54 million b/d—310kbd above their collective target of 21.23 million b/d. Iraq, the UAE, Nigeria, and Gabon all exceeded their production quotas, with Iraq remaining OPEC+'s biggest overproducer, despite a 50kbd reduction in its monthly output.
So, tying the pieces together, the message of Saudi throwing in the towel towards $100 oil, is more directed to its fellow OPEC members rather than to the broader market. At some point Saudi Arabia will run out of Aramco shares to sell.
Other than that, it was a slow week with premiums and time spreads adjusting to more normal levels, interregional spreads are also coming closer suggesting buyers are selective, buying across all grades and benchmarks, Asia is slowly returning to the markets with the return of offline refining capacity.
Enough of this speculation, let’s see what’s moving
Oil Physical
