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Trend:

Rotterdam: $ 3 higher
Singapore: $ 9 higher
US Gulf: $ 1 lower

Arab spring 2.0 fears (Brent: $107.8)

As summer time, along with the seasonal holiday, has kicked in, even minor news has the power to move entire asset classes, as liquidity is usually lower than "normal". Many trading desks are also being manned by junior employees, which means we are likely to see odd movements in prices on oil. The continued negative news flow out of Egypt shold not be classified as "minor". While we do not belive the Suez Canal will be closed, or the SUMED pipeline blow up (transporting a total of 2.4 mbpd), the potential ripple effects if the unrest spreads to surrounding countries (especially Libya), would be very bullish for prices.

In Libya, production was cut by almost 500,000 bpd last week due to disagreement between oil workers and the government security forces. Production has resumed this week, but the situation is clearly far from stable. Libyan crude is of very high quality and not easily replaced, hence the major spike in prices during the 2011 war, where almost the entire Libyan production of 1.6 mbpd was halted.

Recommendation

We recommend clients to use setbacks to enter hedges, in the current unstable geopolitical environment prices seem to be heading higher. We estimate 112 to be the next short term price target.