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Trends

Rotterdam (ARA) fuel oil - Trading USD 7 higher

Singapore fuel oil - Trading USD 9 higher

US Gulf fuel oil - Expected to USD 1 higher

EU diplomat talks the talk – US to walk the walk? Instantly bullish for oil

As an unnamed EU diplomat yesterday was reported saying: "an agreement to ban Iranian oil has been agreed in principal" Brent instantly rose by 2%. As it was less than a month ago Iran compared a ban to a hostile action, against which it would respond with military means, the market responded with an increased fear factor. Should Iran successfully disrupt the 17 million bpd traffic through the Strait of Hormuz, there is an alternative route for roughly 5 million bpd as they can be transported through Saudi Arabia's pipelines. We believe US 5h fleet will respond instantly with countermeasures to any disruption, but the mere rise in insurance premiums for supertankers sailing through the strait is enough to have a severe impact on crude oil prices.

EU and Nigeria challenges

The temporary shutdown of Petroplus’ refinery in Petit-Couronne, France has put 550 jobs at risk. This has refinery workers all across France threatening a nationwide shutdown of refineries unless a solution is found for the Petroplus workers. This would mean an additional 1.7 million barrels per day in lost refinery capacity and spark a fuel shortage across the European continent. Already the inventory numbers for Europe are at low levels, crude the lowest in 6 years, and distillates down to 2008 levels.

Recommendation

We recommend consumers who have not hedged yet, to use market dips to establish hedges. Any disruption in Hormuz would have severe impact on oil prices, and we strongly advise clients to have this top of mind. As OPEC will likely support prices around and above 100, we therefore advise consumers to prepare for three digit oil prices on average for 2012.