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Trend:

Rotterdam: $ 0 lower
Singapore: $ 1 lower
US Gulf: $ 0 higher

Mixed oil news (Brent: USD 108.4)

Egyptian turmoil - The political turmoil continues and is providing a support to oil prices in the near term. Again, the main concern is not so much related to the oil production but fears that the unrest could spark tensions in neighbouring countries, escalating in the next ‘Arab Spring’. As long as the situation is contained to Egypt, we estimate the Egyptian military to keep the Suez canal open, and the SUMED pipeline to keep flowing. Only minor disruptions would be expected in the 2.4mbpd flow.

Speculators driving otherwise quiet market

The accommodative monetary policy further reiterated by the Fed on Thursday could have sustained a strong outflow of money into the oil markets. Hedge funds increased their net long positions (in futures and options) by 27,107 contracts to an all time high of 357,564 contracts. This speculation is most likely driven by the unrest in Egypt and could subside as soon as there is news of stability.

Iraq-Turkey pipeline

The Kirkuk-Ceyhan pipeline which is also Iraq's largest crude oil export line, has two pipes carrying up to 1100,000 bpd and 500,000 bpd respectively. Flow has just restarted after a month-long disruption that was caused by repeated sabotage attacks on the Iraq leg. The level of flow is unclear but it has been reported that in line with practice only one of the two lines is currently being used.

Recommendation

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