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Trend:

Rotterdam: $ 3 lower
Singapore: $ 6 lower
US Gulf: $ 1 lower

Investment banks to be banned from physical oil trading? (Brent: $106.8)

The US Federal Reserve (FED) is undertaking a review of major Wall Street banks current involvement in physical oil trading, storage and transportation. A 14-year-old exemption allows banks to be physically involved in 'complementary' activities to the banks financials dealings. The obvious conflict of interest in this setup has raised some concerns in the U.S. Congress. While it hasn't been proved that any actual wrong-doing has materialized, it would definitely mean different winds for the oil market if banks are prohibited from the physical market. In the event of a ban, the activity is likely to be picked up by non-financial institutions, or the banks could spin-off the activity into a new legal entity. One thing is given during such a potential process: increased volatility. Bloomberg reports that one bank alone has physical delivery contracts for almost 600,000 bpd.

EIA oil inventory report

Yesterday's EIA report showed a decrease of 2.8 million barrels for crude oil stockpiles, a slight difference from the consensus of a drop of 2.1 million barrels. No substantial impact on crude oil prices was felt since the expected drop was already priced in.

Distillates and gasoline however had a drop of around 1.3 million barrels each, against an expected increase in 1.8 million and 1.1 million barrels respectively. This might very well be explaination behind the current strong support for Gasoil and distillates in general.

Recommendation

We recommend clients to use the current setback to enter hedges, should it suit your budgets. In the current unstable geopolitical environment prices seem to be aiming higher. We estimate $112 to be the next short term price target.