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Trends

Rotterdam: $10 higher
Singapore: $16 higher
US Gulf: $2 higher

North Sea production disrupted - unstable Libya security situation

As discussed in yesterday's briefing, the recent days' price action did not seem to have a background in fundamental changes and/or news. Explaining short-term price action with fundamental news can often be like comparing a 100 metre distance between an Olympic sprinter and a marathon runner. The most reasonable explanation for the past couple of days' trading seems to be a mix of High-Frequency-Trading (HFT), and stop-loss orders.

In our search for cold hard facts, we observe that North Sea output is being disrupted (again), due to technical difficulties in Buzzard and Fortis. Furthermore the security situation in Libya is making headlines, as oil workers are concerned with their safety. Libya has increased output to near pre-war levels (1.4mbpd vs. 1.6 mbpd), any disruptions from the African sweet crude nation, HFT or not, would have severe consequences for oil prices. The sweet crude (easily converted into diesel/gasoline, etc) is not straightforwardly replaced by any extra sour crude from Saudi Arabia.

Recommendation

We estimate price to trade somewhat sideways around the 108 level for a couple of days (+/- $3, as speculators find their feet). The unrest in the Middle East should support prices, as should the QE3 from the FED. Risk to the downside could emerge from the US fiscal cliff, but as they have agreed on a "last minute deal" during the last couple of decades it seems reasonable to assume the same will happen again.