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Trends

Rotterdam (ARA) fuel oil - USD 5 higher

Singapore fuel oil - USD11 higher

US Gulf fuel oil - USD4 higher

Situation escalating in Syria (Brent: $106.0)

Whilst Syria only plays a minor direct role in global oil production (approx. 120,000 bpd), the fear that increased Syrian unrest will have a spillover effect on other Middle Eastern countries is supporting prices. The UN is pushing for a resolution to intervene in Syria but Russia, having naval/military bases there, is not interested in western forces spelunking in or around their military installations. While high politics seems to keep the situation in a deadlock, Syrian officers are bailing ship and the degree of violence seems to keep escalating. Oil prices will be highly affected by potential contagion to any of the major oil producing countries in the area.

Saudi Arabia trims production

Us crude inventories dropped, and confirmed the trend in API numbers. The drop in gasoline is not extraordinary as the driving season is still ongoing.

Release: EIA oil data (Consensus)
Crude: -800,000 barrels (-1,150,000)
Distillates: 2,600,000 barrels (1,450,000)
Gasoline: -1,800,000 barrels (1,200,000)
Refinery utilization: -0.7%

On a related crude note: Saudi Arabian production is slowly being scaled back from the record levels produced during the first months of 2012 (approx. 10mbpd). Production is now at 9.8 mbpd, and it seems our estimate of a production cut to counter steeply falling prices is coming true. We believe Saudi Arabia might trim production slightly further (1-300,000 bpd) before stabilizing output levels.

Recommendation

A lot of volatility is scheduled ahead. As liquidity usually decreases over the summer clients are advised to take advantage of any "outliers" in prices. Sparked either by news from the Middle East or the never-ending Global debt story. We recommend consumers to enter hedges should it suit your budgets.