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Trends

Rotterdam: $4 higher
Singapore: $4 higher
US Gulf: $3 higher

Israel continues to pursue 'red lines' for Iran (Brent: $115.7)

Israeli PM Netanyahu continues to pursue a U.S. definition of "red lines" on Iran’s nuclear program. Lines, once crossed, that would mean a military response from the U.S. He did not remove a potential unilateral Israeli strike on Iran’s nuclear installations from the range of options: "The world tells Israel: Wait. There’s still time. And I say: Wait for what? Wait until when?. Those in the international community who refuse to put red lines before Iran don’t have the moral right to place a red light before Israel." The tense situation between Israel-Iran, while not reported broadly in the media, does not seem to have eased. Any military escalation would have a significant impact on oil prices (upwards).

Today at 10.00 CET the German constitutional court will rule whether Germany's collateral for the European bailout-fund is "legal". Most legal experts expect a: "yes, but don’t push your luck". German finance minister Schäuble has stated that there: "is no plan B, and we won’t need one." Nonetheless that oil market will hold its breath at 10.00 CET.

Mixed news:

Two-day FED meeting starts today. If there is any QE, it will be published tomorrow. Moody’s has warned that it will cut the credit rating of the U.S. by one notch. The Brent October contract expires tomorrow, and will be replaced by the 70 cent lower November contract. The EIA raised its demand forecast for 2013 slightly. It now expects global demand at 90.1 mbpd, while OPEC expects roughly 1mpd less. At 16.30 CET the U.S. oil inventories will be published. Expectations are for an overall draw.

Recommendation:

We expect the oil price to test 116 shortly (even with the October-November contract roll). An upside breakout looks increasingly likely. The FED has the finger on the QE-trigger, in addition to a potential solution in Europe and a continued tense geopolitical situation in the Middle East.