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Trends

Rotterdam (ARA) fuel oil - Trading USD 1 higher

Singapore fuel oil - Trading unchanged

US Gulf fuel oil - Expected to USD 6 higher

Iran losing even more clients (Brent: $113.1)

As EU leaders are close to sealing the deal for an embargo on Iranian oil, Japan and South Korea are seeking alternative suppliers of crude oil as well. Japan and South Korea have a combined import of Iranian crude of roughly 500 thousand bpd. The only country with supposed spare capacity to offset a potential halt on Iranian crude is Saudi Arabia. However; Saudi Arabia is already pumping oil at the highest level in more than 30 years. Output above current levels has never been attempted, and a disruption of oil transport in Hormuz would therefore have a severe impact on prices, as OPEC and non-OPEC are running close to max.

Inventory numbers from US showed a build and pickup in refinery utilization. Despite inventory’s showing a build it has not yet offset the massive draw on crude 21st of December, which might have been for yearend tax reasons. Check out our weekly oil inventory report for more details.

Release: EIA oil data (Consensus)

Crude: 2,200,000 barrels (-200,000)
Distillates: 3,200,000 barrels (800,000)
Gasoline: 2,500,000 barrels (1,300,000)
Refinery utilization: 0.8% (0.4%)

Potential unrest in Nigeria?

The ending of fuel subsidies in Nigeria has the population threatening strikes and blockades in one of the oil richest nations in Africa. Nigeria does not have capacity to refine its own crude and therefore export crude and import refined products. To supply its population with cheap diesel for generators etc. the government has subsidized prices with $7.5bn, which will no longer be the case. Prices on refined products for the local business in Nigeria will almost double! Nigerian crude is very sweet and thus easier to refine. Any strike from oil workers or blockades of pumping stations would therefore mean higher prices on oil. Especially for lighter products.

Recommendation

We recommend consumers who have not hedged yet, to use market dips to establish hedges. Any disruption in Hormuz and/or Nigeria 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.