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Trends

Rotterdam (ARA) fuel oil - Trading USD 2 higher

Singapore fuel oil - Trading USD 2 higher

US Gulf fuel oil - Expected to open USD 2 higher

North Sea production, and FED meeting (Brent: $126.0)

In the midst of supply worries for the Middle East and Africa, it is still worth keeping an eye on the benchmark production for Brent: North Sea output. The International Energy Agency (IEA) has revised its outlook for North Sea production for 2012 and now estimates a drop in production of approximately 50,000 bpd. Considering the yearly drop in production the last 10 years, (between 200,000 and 450,000 bpd) it seems a bit too optimistic in our perspective. Since 2000, North Sea production has dropped by almost 50%, and in the short run the trend seems to continue. Although a calm geopolitical area, we remain wary of any output disruption due to technical or weather conditions.

FED meeting today - watch out for hints of QE

Given the previous statements of chairman of the Federal Reserve (FED), the possibility of QE3 has definitely not left the table. As we wrote on 8/3 the "leak” of FED’s discussion today circled around a "sterile" version of QE1. Printing money like QE1 to buy US Treasuries, but "sterilising" them by agreeing to sell them back at a predetermined higher price and time - also known as a reverse repo. The buyback period, however, would exceed historical levels. This should give financial markets a further boost of confidence and have a bullish effect on oil prices.

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.