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Trends

Rotterdam (ARA) fuel oil - USD2 lower

Singapore fuel oil - USD12 higher

US Gulf fuel oil - USD2 lower

Strait of Hormuz: who has the bigger stick? (Brent: $100.3)

Brent has rallied from 90 to 101 in less than four days. The biggest percentage move since the Libyan crisis sparked some massive volatility. Libyan oil production was 1.6 mbpd while Iranian oil production pre-sanctions was at 3.5 mbpd. Following the implementation of the EU/US sanctions, Iran decided to test long-range missiles capable of reaching Israel. The US has beefed up its military capabilities in the area. Deployment of minesweepers, and other military hardware, has the two countries in a dispute over who has the bigger stick. Should it come to a confrontation the probability of US coming out on top is close to 100% - military hardware considered. The only question is: what the price for a win is going to be.

Oil prices will react to any development in the region. Following the major upwards move of the past couple of days, we believe Brent prices will try to find their footing around the 100 dollar-mark. A minor correction cannot be ruled out, however, we continue to see a rising trend over the remaining months of 2012.

Norwegian oil workers continue their strike as a result of the wage and pension dispute. Production is affected with approximately 300,000 barrels per day.

Recommendation

A lot of volatility is scheduled ahead. The agreement of a growth package is having a bullish effect on oil prices, as will the continued unstable environment in the Middle East. In a long term perspective and given Saudi Arabian "target level" of $100 we see the current levels as favorable from a consumer's point of view. We recommend consumers to enter hedges should it suit your budgets.