---

Trends

Rotterdam (ARA) fuel oil - Trading USD 3 lower

Singapore fuel oil - Trading USD 3 lower

US Gulf fuel oil - Expected to open USD 7 lower

Debt offsets fundamental issues (Brent: $120.4)

The talks on Iran’s nuclear program in Istanbul did, as expected, not produce any concrete results. However, the meeting ended with "constructive dialogue" and another meeting in Baghdad scheduled 23 May. In combination with renewed fear of the European debt crisis, Spain edition, the net long positions of speculators have been reduced by 25 million barrels (out of nearly 200m bbl). Across the board, from equities to commodities, the sentiment is risk off.

It appears the debt crisis is currently more than offsetting some fundamental oil issues:

* - 1 July ban on Iranian oil is still in effect. Thereby resulting in a higher demand on Saudi crude, and thus lower spare capacity. Already now the spare capacity of Saudi Arabia is at 2008 levels.

* - Nothing has yet been agreed on Iran’s nuclear program.

* - Fierce fighting along the Sudan- South Sudan boarder has seriously damaged the largest oil field.

* - Technical difficulties in the North Sea, and missing production from Sudan/South Sudan, Yemen, Syria, Libya etc. has the oil missing 1-1.2 million barrels per day (bpd)

Recommendation

We advise clients to be aware of the fundamental oil market issues. Currently the world is missing 1.0-1.2 mbdp, as geopolitical and technical issues continue. Lower demand from the Euro Zone (-300 kbpd) is more than counterbalanced by the increase in Chinese demand (+800 kbpd). We regard dips to be short-term, and to be seen as favorable hedging opportunities for consumers.