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Trend

Rotterdam: $3 higher
Singapore: $8 higher
US Gulf: $2 lower

Saudi Arabia would like lower prices, but ok with current level ($114.1)

Saudi Arabia’s oil minister Naimi, was quoted saying: "Stability has been restored and oil prices returned to levels which are sustainable to both consuming and producing nations”. He continued: "We would like to see the price moderate….we would like to see it lower, towards $100." While the Saudis have been pumping at multi-decade highs for the past half year, the isolated effect on prices has been fairly limited. The exact spare capacity of Saudi Arabia is only known to a very few top officials in the Kingdom, but estimates range in the 2-3 mbpd area. We do not estimate a massive increase in production from Saudi Arabia. Should it increase production, speculators will start calculating with very very scarce spare capacity, and thus increase their net long positions even more than current levels.

Technical update

Speculators have once again increased their long positions in the oil market. Brent looks ripe to test 115 very soon. If broken, the next resistance does not occur before 120. To the downside there is strong support around the 112-level, and again around 108.

Recommendation

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. Given the scarce inventory levels, and the ongoing maintenance season for refineries, consumers of distillates are strongly advised to consider hedging for the upcoming winter.