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Trends

Rotterdam: $ 1 lower
Singapore: $ 4 lower
US Gulf: $ 2 lower

Second lowest monthly OPEC output in 2012 (Brent: $111.8)

With lower production in high quality oil countries Nigeria and Angola, total OPEC production has fallen to the lowest level since January this year. The imposed sanctions on Iran are sending its production continuously lower as well. Iranian output is at a 24 year low! In September total OPEC production fell to 31.09 million barrels per day (mbpd) from 31.53 mbpd in August. The drop in total production occurred even as the world’s second largest producer Saudi Arabia put the pedal to the metal, and pumped near multi-decade highs of 10 mbpd. As described in our quarterly outlook, the global supply-demand balance is rather fragile. Any further supply disruptions would pose a significant upwards trend to prices.

Speculators cut their net long positions by +44,000 contracts, giving some short term jitters to the market prices. Given the low inventory levels on lighter products, we estimate an increased possibility of speculators increasing their net long positions to record highs in the months ahead.

Recommendation

Prices are testing whether a break of the 112-level can be sustained. Should prices close above we see an increased risk of an attempt towards 115, and subsequently 120. The U.S. election can bring outliers in price, which clients are advised to take advantage of. Meanwhile the supply-demand situation is walking a tightrope, and the geopolitical nuclear wildcard in the Middle East remains.