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Trends

Rotterdam (ARA) fuel oil - trading unchanged

Singapore fuel oil - $8 lower

US Gulf fuel oil - $3 lower

Iran talks: an agreement "in principal" (Brent: $105.9)

As the talks between western countries and Iran enter the second day several reports out of the meeting indicate that the international nuclear watchdog IAEA will gain access to military installations in Parchin - a site suspected of holding a nuclear blast in 2003. However, nothing concrete has been agreed between the parties, but both sides appear to be trying to save face and reach some sort of agreement "soon".

Even in the event of a fragile final agreement, the ban on Iranian oil is highly likely to kick in at 1 July. Until Iran complies with potentially agreed measures, we do not see the lifting of sanctions on Iranian oil exports. One thing is fundamental (potentially missing oil from Iran aka lower Saudi spare capacity), another is the mind of speculators who may decide that an agreement to agree should send oil prices lower.

Meanwhile, the Greek debt knot has more than offset the Iranian risk premium. EU leaders are having (yet another) meeting to discuss debt strategies. Before the second Greek election this year on 17 June, the other EU-leaders will not know with whom to negotiate. Thus, the uncertainty regarding a potential "Grexit" will continue.

Recommendation

In the battle between oil bears; potential Euro break-up and thus lower demand, and oil bulls; Emerging markets offsetting lower demand from the Euro Zone, the bears have gained the upper hand. Where the exact bottom may be hard to predict, but what we do know is that OECD crude inventories are currently very low. Saudi Arabia is pumping at record levels. World demand is increasing at almost 1 mbpd even as EU/US demand slows. We see the current levels as favorable for long term hedges. Looking into 2013, and considering the backwardation, the current achievable levels should prove favorable even if volatility continues throughout the summer.