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Trends

Rotterdam (ARA) fuel oil - Trading USD 4 lower

Singapore fuel oil - Trading unchanged

US Gulf fuel oil - Expected to open USD 4 lower

China in biggest monthly trade balance deficit ever! (Brent: $125.4)

For the month of February the Republic of China experienced current account deficit on nearly $32bn. The negative numbers are mainly due to large oil imports. As we wrote in a previous market briefing (21/2) the building of Chinese strategic oil reserves will take a lot of oil out of the market. We estimate an average of nearly 200,000 bpd for the next 8 years to be taken out of the market, and put directly into the Chinese strategic reserves. Obviously it will weigh on the Chinese trade balance, but it should not be mistaken as a sign of a slowdown in Asia’s biggest economy.

Historically it is further noticed that Chinese imports are high at the beginning of a calendar year.

ISDA stating the obvious - default on Greek bonds

The organization holding the power over many financial transactions, International Swaps and Derivatives Association, has decided to declare "Event of Default" on the Greek bonds as some bondholders were forced into accepting a reduced payment of principal, thereby triggering the bankruptcy insurances (CDS – credit default swaps). Oil markets haven't moved much on the back of the $3bn insurance payments, as a haircut of approximately 74% was actually better than where the bonds were trading at the time (close to 95% haircut was priced in). The Greek financial situation hereby seems to be put on hold and the oil market seems currently immune to any bad debt news.

Recommendation

We recommend clients to prepare for volatile prices ahead. Despite the whole debt debacle in western countries, global oil demand is already higher than in 2011 (and 2010, 2009, 2008). In combination with missing production, any drop in prices might be rather short-lived. The next technical resistance level is USD 127 - support level is USD 118.5.