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Trends

Rotterdam: $6 higher
Singapore: $4 higher
US Gulf: $2 higher

Surprise draw on US inventories (Brent: $110.3)

Despite an increased domestic production in the U.S. - more than 80% of U.S. oil consumption is covered by domestic production - the weekly crude inventory numbers showed a draw. Market expectations of a build on +900,000 barrels, were bashed by a draw of nearly 2.5 million barrels. Considering the vast amount of shale oil available, U.S. oil production is expected to continue its advance. However, the amount of oil available will have a hard time bringing down prices in the long run as exploration costs are substantially higher than conventional oil drilling.

Sudan and South Sudan have reached a deal on security along the 1,800 km oil rich border. South Sudan halted its entire 350,000 bpd production earlier this year due to a dispute over transit fees with Sudan. South Sudanese oil flows through pipelines in Sudan to reach the Red Sea. Production is estimated to return slowly, as the two nations have literally had a small war in the midst of the oil fields.

Recommendation

We estimate prices to trade somewhat sideways for a couple of days. Any serious attempt above 112 or below 107, would pose a new scenario. 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.