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Fuel oil trend

Rotterdam: $ 1 higher
Singapore: $ 2 lower
US Gulf: $ 1 lower

OPEC on potential extra oil supply: we can handle it (Brent: $106.9)

The current head of OPEC (Libya’s al-Badri) said the organization would be able to balance potential increased supply from Iran (if sanctions are lifted), Libya (if rebels and Tripoli agree) and Iraq to avoid a situation with oversupply. For this to happen, practically the group would have to cut back approximately 2 mbpd – depending on world demand at the time. In reality only Saudi Arabia has been willing to reduce production on a larger scale, and 2mbpd seems quite a mouthful even for the Saudis. First things first: Sanctions on Iran lifted shortly: plausible, but not likely. Libya returning to full production: maybe for a short while, but we wouldn't bet the farm on anything sustainable as long as Tripoli cannot guarantee the security situation in the country. Iraq ramps up production and export: maybe.

So, if all the above turns out completely opposite of what we expect, things would look rather bearish from a supply perspective. If our estimates are only partly correct, Saudi Arabia can scale back production and keep everything balanced.

Yes, shale oil production is set to increase in 2014 as well, but that increase (less than 1mbpd) will be more than offset by the increase in demand (almost 1.5mbpd).

Today the FED teams up, and the published statement tomorrow will give further hints to the tapering of QE. Expect volatility around the publication, as traders align positions to match the FED's signals. The private U.S. oil inventories (API) will be published today (22.30 CET), and will likely determine the opening price for tomorrow.

Recommendation

Oil has started its rebound after its numerous attempts lower at the beginning of the year. We advise consumers to use dips and setbacks to establish partly hedges should it suit your hedging strategy. We estimate potential short-term setbacks to be around 1% for crude and gasoil, the upside however looks to have more potential in the medium term.