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Trends

Rotterdam (ARA) fuel oil - Trading USD2 lower

Singapore fuel oil -Trading USD5 lower

US Gulf fuel oil - Expected to open USD2 lower

Nuclear watchdog says Iran is acting suspicious

The International Atomic Energy Agency (IAEA) published its report on Iran, with (what some say) is clear evidence Iran is close to reaching nuclear warheads. This has once again incited forces calling for a pre-emptive strike on Iran. Although we find it highly unlikely that a foreign country will actually attack Iran it will surely take the headlines and call for a risk premium on oil prices.

The much quoted recent conversation between Sarkozy and Obama, combined with a Russian warning that an attack on Iran will have serious consequences, should provide sufficient evidence that high politics have already kicked into gear on this one. A wildcard is if Israel decides to fly solo, but that too seems unlikely. Currently sanctions on an "unprecedented scale" are being discussed, while Iran's Ahmadinejad will not stray one inch from Iran's nuclear path.

Italian PM survives vote of confidence - but underlying confidence is still low

Berlusconi survived his 57th vote of confidence, but has vowed to back down once the austerity measures have been agreed in parliament. Somehow this has convinced the stock market that all the troubles of Italy have been solved. However, the bond market does not seem convinced, sending Italy's 10y yield to 6.8%. We urge clients to remember that 7% marked the area where Greece, Ireland etc. had to seek bailout from the rest of EU/IMF. If Italy goes down the same path, there will be serious implications for all asset classes.

Oil market supply is still very tight, and thus demand has to be covered by inventories

Despite a bleak outlook on the macroeconomic side, the world still hungers for oil products. Libya is still not fully operational. Russia is slowing exports as winter kicks in, and OPEC will not produce more than 30 million barrels per day (mbpd) for the rest of 2011, and possibly 2012 as well. With world demand for oil still around 86 mbpd, prices are on the rise.

Release: API oil data (Consensus)

Crude: 150,000 barrels (400,000)
Distillates: -2,900,000 barrels (-2,000,000)
Gasoline: -1,500,000 barrels (300,000)

Recommendation

As oil prices are showing little loss of momentum, we urge consumers to consider further potential upside and adjust strategies accordingly. Prices around 108 have proved to be supportive for prices. We recommend consumers who have not hedged yet, to consider entering partly at that level. As OPEC will likely support prices around and above 100, we see consumer hedges at that level as attractive going into 2012.