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Trends

Rotterdam (ARA) fuel oil - $10 higher

Singapore fuel oil - $11 higher

US Gulf fuel oil - $12 higher

US senate closes Iranian oil loopholes (Brent: $109.2)

Ahead of tomorrow’s talks on Iran’s nuclear program some last minute events have occurred. The UN nuclear watchdog, IAEA’s Chief Yukiya Amano, had a brief visit in Tehran yesterday to push for access to nuclear installations. The meeting resulted in some exchanges of nice words but was not followed up with anything specific. The US Senate passed a bill that closes some of the “legal” loopholes Iran had to keep getting paid in hard currency for its oil exports. Hereby, the US is clearly upping the pressure on Iranian top nuclear negotiator Saeed Jalili ahead of tomorrow’s talks.

Meanwhile Iran continues to install more centrifuges in its underground nuclear facility at Fordo. Having 3,000 centrifuges designed to produce highly enriched nuclear material (20%), a critical level just shy of warhead material, will likely not exactly put a smiley face on Catherin Ashton, top negotiator for the P5+1 (US, Russia, China, France, UK, Germany).

We believe the meeting starting tomorrow will most likely not produce anything concrete. Our base case scenario is that an agreement is made on a third and final meeting sometime in mid-June. Just in enough time to potentially agree on something before the 1 July sanctions on Iran’s oil export kick in.

Recommendation

We recommend consumers to use market dips to establish hedges. If no agreements on Iran’s nuclear program before 1 July, sanctions will effectively remove 1-1.5mbpd from the oil market.