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Trends

Rotterdam: $1 higher
Singapore: $1 lower
US Gulf: $1 higher

Issac downgraded, flooded refineries. Iran increases nuclear capacity?

Weather phenomenon Issac has been downgraded from a hurricane to a tropical storm. While a relatively minor long-term effect on U.S. production in the Gulf is expected, the short term is a different story. More than 5% of total U.S. production is currently offline (95% in the Gulf region) or equivalent to +900,000 bpd. Some oil companies see a small chance to restart operations later today. That does not apply to the Alliance refinery (247,000 bpd), which has been flooded. With the fire-damages at Amuay (645,000 bpd) in Venezuela, it is vital for the upcoming winter to restart refineries as soon as possible. The low inventory levels on heating oil/diesel would mean a dramatically improved probability of an increase in prices for the lighter products should the winter be with subnormal temperatures. Diesel, gasoil and jet consumers are advised to exercise caution towards the price action in the coming months.

UN nuclear watchdog, IAEA, will publish a report on Iran later today. Parts of said report appear to have been leaked. Apparently, Iran has increased the uranium refinery capacity at Fordow (the underground facility, sheltered from conventional air attacks) by at least 30 percent since May 2012. Iran insists the program is meant for peaceful purposes, while western intelligence fears it may be used for military strategies. Uncertainty surrounding Iran’s nuclear program will continue to mean volatility for the oil prices in the weeks and months to come. Consumers are advised to enter hedges during market dips, as the situation is not expected to be resolved shortly.

Recommendation

We expect the oil price to be ranged between $111-116 in the short term. Upside bias is warranted, as the FED has the finger on the trigger, in addition to a potential solution in Europe and a continued tense geopolitical situation in the Middle East. Hurricane season is a wildcard for oil prices.