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Trends

Rotterdam: $ 6 lower
Singapore: trading unchanged
US Gulf: $ 1 higher

U.S. politicians fail to agree, cutbacks in effect (Brent: $111.1)

As Democrates and Republicans failed for the first time since 2010 to agree on an 11th hour solution, automatic budget cuts are now kicking in. The not insignificant cutback across the board (from the military to food and housing programs) will mean $85bn less in spending throughout 2013. Estimates range that it will mean between 0.5-1.0% lower GDP, sending the U.S. back into recession. We humbly disagree as the FED is effectively offsetting the cuts by sending $85bn per month into the economy. Furthermore, a $85bn cutback, when put into context of a $2.5 trillion budget, roughly means 3% less spending (or smarter spending). Hardly the end of the U.S. economy as we know it. Oil prices should not be weighed down in the medium-to-long-term by this news.

OPEC increased output – slightly

For the first time since last summer OPEC output has increased. Higher-than-expected production in Libya has offset the Saudi Arabian cut in production. An increase in total OPEC output by nearly 100,000 bpd to 30.7 mbpd in February. As long as Saudi Arabia does not increase production (something that seems unlikely with prices below 120), any major setback from current prices levels will not occur due to oil supply fundamentals.

Recommendation

During the current setback in prices, consumers are advised to consider entering partly hedges. Fundamentals are still pointing upwards for prices, and issues regarding the nuclear program in Iran will be around for quite some time. Despite the agreed meetings between P5+1 and Iran an actual solution is still far far and away.