Reports

The upper 60s came and went, with the initial negative narrative being overtaken by ‘it is not so bad and we are going to:’ 75, 77, 80 or even more. Take your pick. But the macros have not changed and, if anything, they are a wee bit worse and everything works at the margin. So be careful. In flat price the story has been pretty directionless to stronger. A random walk along the flat price chart saw a slow morning, before picking up steam into the early hours of US trading. According to traders, Exxon has been selling alongside Chevron, a Team America defector, and shortly before the window they may have got their way, with flat price and spreads both easing off. As flat price reached the day’s peak at $73.31/bbl, Brent front spreads peaked at 66c just after 15:00 BST, before shedding 8c to close the window at 58c. Further down the curve, little changed. But the short end remains strong. One trader said, “we are no way oversold or pricing below where we ought to be”, even despite the historic short positioning in managed money. But for every short, there is a long, so…

It’s the positioning in Brent contracts that is really intriguing this morning. Managed money net length in Brent futures contracts, according to ICE COT, has turned negative, marking a historic shift in sentiment on the long/short seesaw. For the first time since the data began being collated, some of the shorts are outweighing the longs. The composition is clear with -33.7 mb net short for the week ending 10 Sep. Shorts look a bit saturated…

Flat price has largely shrugged off APPEC’s bearish consensus; the market was overly short, really. Flat price and spreads all gained through the backend of the week and traders reported that next week, they’re “not really seeing any selling”, but they followed up that the two subsequent weeks have lots of selling. In short, the market is backwardating. Let’s not understate this: implied diffs are $1.30 for next week, little changed from where we are now, but the week after, they’re pricing 80c!! The market is teetering on the clifftops, Kennie had better have his parachute. There’s still plenty of trading time, so who knows? Nobody…

Saudi allocations to Chinese refiners for October have jumped. Before we get into the details note the increase is in sharp contrast with the output stability narrative by OPEC. Key question to Saudi Arabia: if you are not hiking production, why are you increasing allocations to your customers? According to sources, Unipec got 14.5 mb for October up from 11 mb for September. Rongsheng, the favourite of the bunch, remains the primary recipient, at an unchanged 16 mb. These two take the lion’s share of supply. Total allocation grew to 45.5 mb in October, from 43 mb in September, just shy of the 3 mb increase we expected. As we’ve been saying, China doesn’t need much crude to fulfil its ailing demand, so where is this all going?

Blimey! Brent’s surge into the European close burst up beyond the last few days’ levels to carry us firmly back into the $72/bbl range. The bears went too deep into enemy territory and now they have to pay up! The super-short market will be feeling the pinch from this afternoon and we’re sure some will be kicking themselves for jumping on the bandwagon of $60 Brent too early.