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Fuel oil trend

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

Heat on in Libya. Room temperature in U.S. manufacturing (Brent: $106.0)

In Libya, the Tripoli government has supposedly lost its patience with rebels controlling some of the key eastern ports (approximately 600,000 bpd capacity). PM Zeidan stated: "Weeks ago we ordered the minister of defense to give his instructions to the chief of staff to move towards the occupied ports in the east. Now the matter is in the hands of the army command." Should it come to clashes between government forces and local tribal leaders, the risk of damage to oil infrastructure is high, and would likely affect prices (though not in a major way, since the market is well aware of the challenges in Libya). We would estimate a spike of $2-3 on Brent as likely.

The U.S. ISM Manufacturing came out at 51.3; significantly lower than consensus (56.4). A figure above 50 signals growth, whereas a figure below signals contraction in the manufacturing industry. The ISM is one of the 'hints' to second-guess jobless rates further out on the curve. Should we start to see a further decline (below 50) in the U.S. figures, speculations of a slowdown of the tapering will begin (though that might not change the actual tapering, the market operates in 'perception is reality'-kind of approach. Delayed tapering (or perceived delayed tapering) would short-term boost various asset classes, such as oil.

Recommendation

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. With the low inventories for distillates, gasoil/diesel and consumers of lighter products should be extra cautious as sudden spikes cannot be ruled out.