Daily Oil Commentary

Brent closed up 0.65 last night to $57.82 and WTi closed up 0.42 to $51.87.

Moring all. Brent closed up 0.65 last night to $57.82 and WTi closed up 0.42 to $51.87. I mentioned yesterday that the market at the moment only seems to react off bullish news, qte "The oil market seems so ready to pounce on any hint of bullish news but dismisses news of a bearish nature like a pathetic Arsenal back 4 attempting to clear an attack". Now this isn't some recap commentary like a US sitcom does at the end of each series because they have run out of things to write - far from it. Yesterday's market evidenced what I was saying. Tensions in the Middle East are causing the bulls to run away with the market and ignore any other news articles that may be thrown in their faces. I agree with Mr Birol that oil security remains of paramount importance for everyone, so geopolitics and oil will always be linked BUT EIA were dismissed last night like a GORDAN STRACHAN FOREVER Scottish football scarf. EIA last night said "US crude oil production will average 9.4m bbl/day for the second half of 2017, measuring approximately 340,000 bbl/day more than during the first half of the year". Ummmmm. Hang on a second please caller - didn't Mr Barkindo say “We are not looking at the U.S. as a risk, we are looking at the U.S. as a partner — a strategic partner in the rebalancing process,”. Well who needs enemies when OPEC have the US? Wow. Quite why OPEC and the market seem to be dismissing US production and record high exports is quite frankly beyond me. When OPEC extend the production cut, which they will, US producers will once again benefit. And it's not like they are helping the rebalancing is it? They are only benefitting from others trying to help in the same way a bully at school stealing your Christmas diorama project. Brutal. In other news - I hope your car isn't made from the finest Japanese Kobe steel (without prejudice). Good day all.

Daily Oil Commentary

Brent closed up 0.92 on Friday to close at $57.17 and WTi closed at $51.45 up 0.85.

Morning all and hope everyone had a nice weekend. Brent closed up 0.92 on Friday to close at $57.17 and WTi closed at $51.45 up 0.85. This market frustrates me about as much as that person does who decides to leave tiny remnants of food in the bottom of the kitchen sink for someone else to clean up. Why leave a sweetcorn kernel and a tiny floret of broccoli for someone else!! Grrr. The oil market seems so ready to pounce on any hint of bullish news but dismisses news of a bearish nature like a pathetic Arsenal back 4 attempting to clear an attack. Bullish news = spike. Bearish news = don't drop but don't spike. I fear a correction is around the corner. Let's face it, it wasn't long before Donald Trump was going to do something about the Iran nuclear agreement - whichever way you look at it he has fundamentally back traded on an agreement that was put in place before he came in to power. This was always on his agenda. Whether his refusal to extend the deal will get through congress is anyone's guess but if it does, I expect there to be uproar politically so watch news with regards to that with caution as the slightest hint that sanctions are put in back in place then flat price will react dramatically. Staying with the US and the rig count dropped last week by 5. I think that this coming Friday we will see the rig count rise again in reaction to higher prices and, what looks to be at least, the end of the brutal 2017 Atlantic hurricane season. What is interesting however is how resilient US crude production and exports have been throughout this summer. We are at record highs in terms of US exports and this is without stocks falling linear to exports. With the WTI/Brent spread floating around -5.50 it is clear that the US crude traders are looking to knock Brent off its Asian perch and shake up the market. Fall behind the curve and you could quickly be looking at a lean Christmas. Good day and week to all.

Daily Oil Commentary

Brent closed down 0.69 last night to $56.25 and WTi closed at $50.60 down 0.70. What has the week bought us?

In the words of the late, great Richie Benaud - Morning everyone. Brent closed down 0.69 last night to $56.25 and WTi closed at $50.60 down 0.70. What has the week bought us? Well if you're a US soccer fan then remember it's called FOOTBALL not SOCCER. Maybe that will help you qualify for the next world cup......brutal. But what about the oil market? Here's a quote for you "Let me be that I am and seek not to alter me". You know what that's from? And no it's not from Hello! It's from Much Ado About Nothing and both the quote and the famous play sum up this market fairly well at the moment. W/O/W we are down 1%. Wow. Kick the tyres and light the fires big daddy. Bored. Yes perhaps there has been some dramatic moments but in this market they seem to be forgotten about quicker than when everyone thought Brexit would be a straight forward process. However I did read one article where it seemed someone agreed with me (point of order -I had to search high and low for it but that's by the by). It was about China - this year so far has shown that local Chinese commodity trading has dropped 30%. It has dropped 10% alone in the last 2 months. China's economy is shifting away from that of a commodity super cycle and in to one that is services oriented. The market has reacted this morning on the back of China's demand increasing but it seems the majority of this is SPR buying, not consumer demand. China should not be looked at as a lynchpin for commodity demand but it seems as if it is and I fear for the day the market realises it. In other news APi data proved as annoying as when Donald trump makes a speech and uses that stupid hand signal to accentuate every other point (what is that all about?). APi were wrong by about 5mn bbls as EIA data proved last night. Instead of a build on crude, there was a draw. Good job guys. However with US exports still at record levels the market reacted to this fairly supportive news with the same happiness as Melania did when she saw some recent texts from Ivana. DONALLDDDDDDDDDDDD. I wish you all a very pleasant and peaceful weekend.  

Daily Oil Commentary

Brent closed up 0.33 last night to $56.94 and WTi closed up 0.38 last night to $51.30

Morning all. Brent closed up 0.33 last night to $56.94 and WTi closed up 0.38 last night to $51.30. We've all been there - you know when you are so desperate for the bathroom but it's on the 15th floor, you're on the ground floor and all elevators are on the 30th floor. You press that button so ferociously over and over again that it nearly breaks. What's the point? It's not the buttons fault but press away you do in the desperate hope that miraculously an elevator will stop and drop to the ground floor just for you. This hope seems to be where OPEC are right now. They're desperate for the bathroom and all elevators are on the top floor. You have to admire them - they keep on saying that demand is going to increase and that distillate stocks are low coming in to winter. Then bam, about 8 hours later API release data that shows stocks are building - distillates included. It's like the US have sent every elevator down to the ground floor for OPEC but pressed every floor on the way down. Excruciating. However my negativity is making me feel a little uneasy. There comes a point where you read so much about demand and global economies growing that eventually you start to believe them. Even though there isn't really any tangible proof to evidence such positivity. Have I missed something? Or am I being sucked in to a false dawn like an over enthusiastic intern writing something to his bosses to prove he is worth a job? Perhaps my ignorance is dangerous but I'd much rather sit here and opine on facts that I would on hope. EIA out at 7pm desert time. IEA report out today at 12pm desert as well so keep your eye on the screen coming in to the window. Good day peeps.  

Daily Oil Commentary

Brent closed up 0.82 last night to $56.61 and WTi closed at $50.92 up 1.34. Quite a rally yesterday.

Morning all. Brent closed up 0.82 last night to $56.61 and WTi closed at $50.92 up 1.34. Quite a rally yesterday. But what was it on the back of? Well I don't know to be honest. Some are claiming that it's owing to Mr Barkindo's promises about taking "extraordinary" steps - you know my view on this over the last 2 days. Others are claiming it's because of the Saudi 560kbpd cuts on crude allocation but it can't be that because exports are actually going to rise more than they did last month. So what is the cause? Well it's pretty simple really, WTi climbed more than 0.50 cents per bbl over Brent yesterday on the close. The WTi/Brent spread is now -5.30, this time last week it was -6. I see this spread coming in even further the more US exports rise and the more OPEC say they are going to cut - the simple answer to the intraday rallies are quite simply that the US are now flexing their muscles and bidding flat price up before selling it when it touches $55. Simples, as that stupid annoying meerkat would say. All the talk recently has been that the market is on the road to recovery. But what does "recovery" mean? The last time Brent was above $60 per bbl was July 2015. In July 2014 Brent was over $110 per bbl. Do people really want $110 per bbl oil again? Most readers of this commentary will have a vested interest in the oil business but I don't believe anyone one of you want to actually pay double or triple the cost right now to fill your car up every week to take your kinds to ballet/football/rugby/drama class/horse riding etc etc etc do you? We have been stuck in a range bound market for a while now and I don't see how we can break out of it when US shale is so adaptable to spikes in flat price. Bored anyone? Don't fear, Donald Turmp is here. OPEC report and APi out later so watch fp with caution. Good day.

Daily Oil Commentary

Brent closed up 0.17 last night to $55.79 and WTi closed at $49.58 up 0.29.

Morning all. Brent closed up 0.17 last night to $55.79 and WTi closed at $49.58 up 0.29. Yesterday the word of the day was "extraordinary". Today the word of the day seems to be "please". The gen secretary of OPEC came out this morning and said "“We urge our friends, in the shale basins of North America to take this shared responsibility with all seriousness it deserves, as one of the key lessons learnt from the current unique supply-driven cycle”. Ahem. I touched on this very subject a few months ago. The dynamic of shale oil is that production is reactive to flat price a lot faster than those of the more traditional ways of producing, i.e. OPEC. Most US producers are financed by the normal reserve base lending banks in the US who will ensure caveats are in each financing agreement to either start hedging the minute oil prices get to a certain level (I'd imagine this number to be in the low 50's based on the fact Eagle Ford average breakeven is $48 per bbl), or in the case of the newer producers, they will be asked to buy put options before funds are released to start nodding some donkeys. So why Mr Barkindo, with all respect, do you think that new technology, 21st century financing and having the ability to use modern derivative instruments isn't going to stop the US producers doing what they need to do? The US aren't as reliant on the older school of balancing federal budgets with oil derived income - they are diverse and the above evidences such. Look, I'm all for stability don't get me wrong but treating the US as allies in the oil market battle is like asking Cersei Lannister for a lift to the pub. Disaster. Winter is coming. Good day.

Daily Oil Commentary

Brent closed down 1.38 on Friday to $55.62 and WTi closed at $49.29 down 1.50.

Extraordinary. Quite an adjective. One that I feel is used to often. Especially when it comes to OPEC. Mr Barkindo, the current Head of OPEC has said that "Some extraordinary measures may be needed in 2018 to rebalance the oil market". OK thanks. What does that mean though? That the next OPEC meeting you will address the press for an hour whilst hopping on one leg? Or throughout the whole of 2018 at every conference you will perfect the art of rubbing your belly with one hand and tapping your head with the other? That would be extraordinary. Quite what other "steps" OPEC will take? Well I think they've perhaps played their hand too early. I mentioned last week that the first ever visit by a Saudi monarch to Russia was important. And the fact that both H.E. Salman bin Abdulaziz Al Saud and Mr Putin were talking about the oil market last week in the hope of waking the bulls up perhaps was a trump card played too early. Not a Donald Trump card - that would be a joker, a proper trump card I mean. We shall see what these "extraordinary" steps are I suppose. Until the OPEC meeting in November I think we can safely assume that the market will react to even the quietest of whispers about what will happen. What else is going on? Well another Hurricane is bashing its way through the US Atlantic Coast. As tragic as each of these storms are I don't think this one will particularly have much of an impact on production. I think it will only halt it for a time. What will be impacted though is the refining sector. It seems that last week’s drop in refinery runs can be attributed to the fact that maintenance season has started. With US crude exports surging and US demand falling seasonally we could see the refining margins start to fall sooner rather than later. Good day and week too all.

Daily Oil Commentary

Brent closed up 1.20 last night to $57.00 and WTi closed at $50.79 up 0.81. What has the week bought us?

Morning all and a very Happy Friday. This week has seemed about as long and excruciating as watching England beat Slovenia last night. Brent closed up 1.20 last night to $57.00 and WTi closed at $50.79 up 0.81. What has the week bought us? Well if you're Theresa May then a pretty nasty throat infection, a P45 shoved down your already sore throat and your backdrop literally collapsing behind you but what about the oil market? Well it's been a pretty subdued week, well at least up until yesterday. Brent is down about 1% on the week but it would have been a lot worse if the Saudi King hadn't gone to visit Vlad yesterday at the Kremlin. Once again this market pins its hopes on the back of, (what I had already assumed was priced in), an extension to the OPEC /Non-OPEC cut agreement. I mean fair play to the countries behind the agreement, you don't get more heavy hitting than the Saudi king and the Russian Numero uno to talk up the oil market do you? But let me tell you this, if you had Lionel Messi and Cristiano Ronaldo both in your football team would you let them both start against Solihull Moors in the First round of the Football League cup? Exactly. You save them for the Semis. And I think this power hitting from OPEC may prove something of a false dawn but we shall see. In my mind the only factor that can really cause us to see a sustained rise on flat price is a drop in US crude production. Let’s face it - the agreement last year never factored in such an aggressive production increase from the US. If this is taken away then we really could be up to those crazy heights of $70 per bbl and perhaps these highs are not far away? The EIA estimates that shale production is still on the rise, but further gains will be much harder to obtain. Shale companies spent just $5 billion on land deals in West Texas in the last six months, a fraction of the $35 billion spent in the prior nine-month period. I think OPEC may just need to be patient here until at least mid Q1 -18 to see if US production does start to plateau, if indeed it ceases to make economic sense then all balls, literally, are in their court. I wish you all a wonderful and relaxing weekend.

Daily Oil Commentary

Brent closed down 0.20 last night to $55.80 and WTi closed at $49.98 down 0.44.

Morning all. Brent closed down 0.20 last night to $55.80 and WTi closed at $49.98 down 0.44. So, another strange reaction from the market last night when API data was confirmed by EIA that everything, except for Gasoline (shock) was drawn quite substantially last week. If you take the numbers at face value then yes, even the most schizo of oil traders would see them as an encouraging sign and rightly buy the market, and fairly aggressively, but the market is no longer reacting straight away off the immediate numbers, it is looking closer in to them and this week we saw US crude exports jump to record levels. Look it can't really come as any surprise, US production is steady at around 9.5mn bpd and demand in the US itself is hardly enough to support this uptick in production so the barrels have to go somewhere. And with Brent/WTi trading at -5.50 why wouldn't people want some of Texans finest? The market share battle is being written about but this was always on the agenda when the market started to realise that not only is US production rising and reacting quickly off the back off rises in flat price but that the US production system is becoming more efficient. Even Mr Putin wasn't enough to be the catalyst yesterday when he spoke about the OPEC/Non-OPEC cuts being extended until end 2018. If I'm honest I think the market has already this extension priced in, and as I mentioned a few weeks ago when does a "cut" stop being a "cut"? It surely is now just OPEC/Non-OPEC policy to a) have some kind of collusion with regards to output and b) to keep production at a level that the market isn't going to drowning in oil. All the extension rhetoric achieves is strengthening of the crude structure further down the curve which allows Jiminy Billy Bob and his barrel of Thunder Horse to eat 78lb steaks out til mid 2019. Good day.

Daily Oil Commentary

Brent closed down 0.12 last night to $56.00 and WTi closed at $50.42 down 0.16.

Morning all. Brent closed down 0.12 last night to $56.00 and WTi closed at $50.42 down 0.16. Soooooo, another down day for crude, it's not looking particularly bright at the moment is it? Even poor old APi data wasn't enough to stem a rally. Their numbers came in that crude had drawn 4.1mn bbls last week. Gasoline was down as well, along with refinery runs AND distillates. Pop the corks! Demand is back! Ssssshhhhhhhh. It's not, now be quiet. Look, trust APi figures at your peril me mateys. EIA will more than likely show us different figures but aside from the inaccuracies between the 2 of them it's clear the market doesn't really believe it. Based on everything I have been reading recently regarding increased demand, forward bullish projections blah blah blah this latest set of US data surely evidences the forecasts no? Alas, like a worn out bit of string, I'm a freyed knot. I have to be honest, I'm not sure I really understand. I mean I know I'm about as negative as it gets with regards to high prices but based on the Q3 rally Brent witnessed surely the same people who were buying this market are still around? Libya have declared force majeure on the Sharara field - another bullish factor. Yet week on week we are down close to 5%. I called it the "Havaiana" theory. 15 years ago if you walked in to a pub wearing bright yellow flip flops you would be turfed out quicker than you can say "Don't want your kind in here sonny". Then bam, Havaiana decide to start producing flip flops, everyone wears them and these days you get turfed out of a pub if you wear a nice polished pair of brogues. It makes no sense - it's just the way it is. In other news the US dollar continues its recovery, the US dollar index was at a 5 month high yesterday - you kept that quiet Ms Yellen didn't you? EIA data out later. TTFN.

Daily Oil Commentary

Morning all. Brent closed last night down 0.67 to $56.12 and WTi closed at $50.58 down 1.09.

Ouch. At one point Brent was down to $55.50 yesterday. Brutal. So it seems that the swimming costume call of $60 per bbl was perhaps the call of the ceiling on this market. So what about calling the floor? Do I need to say that if Brent hits $45 per bbl by the end of October I will dance the Hula down Oxford Street wearing only a grass skirt and a hat made from exotic fruit? No thanks, me and London fell out a long time ago. I'm much happier calling a ceiling to this market than I am calling a floor. Actually scrub that, I hate the words "ceiling" and "floor". Unless of course I'm singing "Wind the Bobbin Up" with my 2 year old daughter. In fact I think the best thing to do would be go in to my daughters pre-school and have a massive Brent chart on the wall of her classroom. Then get all the children sitting down and start singing the song and when they get to the part of the song that goes "point the ceiling, point to the floor", we can take those numbers and report them and Mr Andurand will have another reason to bid the market up. You may think I'm joking but let us not forget that it was only February 2016 that WTI was at $26.21 per bbl. I don't think we'll hit those Chapter 11 pending lows but if the market is ignoring record high stocks, negligible demand, pending maintenance season, winter spec changes, end of the driving season and rising US production then who knows? Catch your breath Stan. In other news APi data is out later. I think it is safe to assume that we can see another rise in crude stocks and a rise in refinery runs. Quite whether US distillate demand is strong enough to once again hold this market together only time will tell. Good day.

Here are sector strategies, global equities risk in Q4

Biotech has been the best-performing niche in healthcare in 2017

The monetary equations in world finance have changed in the past two weeks. US Treasury bond yields have spiked higher - as have yields in German Bunds and UK gilts. The Yellen Fed has decided to shrink its $4.5 trillion balance sheet and hinted at a December rate hike. Trump has unveiled his tax reform plan while Merkel struggles to craft a Jamaica coalition in Berlin. This means volatility and risk premia in financial assets will rise in October.

High valuations, geopolitical tensions, a bond market bloodbath, insanely tight credit spreads, an emerging market bubble and the return of wage inflation mean the odds of a stock market hit have increased. With the Volatility Index (VIX) below 10, it is obvious that Wall Street and the world is short volatility at a time when rising bond yields, inflation and risk premia argue the opposite. This is the time to buy the volatility futures exchange traded note as risk insurance. The other investment ideas in this column are only applicable once the VIX rises 16 and markets correct.

A September to remember for the global crude oil market

A look back on the success of Saudi Arabia's strategy

September 2017 was a historic month for the global crude oil market. West Texas rose to $52 and Brent rose to $58 as financial markets finally accepted that Saudi Arabia has been successful in brokering high compliance rates with last year's Opec and Russia output cut deals. In addition, Hurricanes Harvey and Irma and seasonal refinery maintenance added to demand for crude cargoes even as the US inventory glut eased. Turkey's threat to militarily intervene in Iraqi Kurdistan if Erbil votes to secede from Baghdad in its referendum added a geopolitical risk premium to the oil market. Saudi Arabia and its GCC allies have managed to offset the surge in Libyan and Nigerian output that was not subject to Opec output cuts. Yet oil's bull run is only sustainable if Saudi Arabia plays the role of swing producer in an Opec that has cut output by 1.8 million barrels a day.

Why Germany's election shock is bearish for the euro

Results would have a seismic impact on Europe's politics, foreign relations and financial markets

The German election will have a seismic impact on Europe's politics, foreign relations and financial markets. Even though Angela Merkel won a fourth term, her Christian Democratic Union performed poorly and its Bavarian ally was decimated at the polls. The far-right Alternative For Deutschland (AFD), anti-EU, neo-Nazi rabble rousers, has entered the Bundestag for the first time since the end of the Third Reich. The Social Democrats, the party of Willi Brandt and Gerhard Schroder, has gone into opposition. The Chancellor now has to cobble together a minority government with fractious coalition parties, the Free Democrats, and the Greens. Unlike France, where President Macron received two thirds of the vote in the second round in his bid to win the Élysée Palace, the German election adds to European political risk. It is now obvious that the populist threat to Europe did not end with Marine Le Pen's defeat now that the Brownshirts are back in Berlin. A pragmatic, centre-right, "convergent" Franco-German anchor to steer Europe? Dream on.

Daily Oil Commentary

Morning all and hope everyone had a good weekend. Brent closed Friday at $56.79 and WTi closed up 0.11 to $51.67.

So Q4 is upon us. Only 12 weeks until Christmas. 12 weeks. Or more importantly for some perhaps, only 8 weeks until the next OPEC meeting. As I mentioned Friday, Q3 was a positive one for those who wish flat price higher. 10% higher was the result and everyone was talking about $70 per bbl oil and all being well again in the markets.  The operative word there is "was". Trying to convince me that the market should be at $70 per bbl is like trying to write an essay with your opposite writing hand and not have it look like that a 6 year old has written it. For the ambidextrous among you, you don't count. I made a point last week that the clear data point with regards to crude oil is the US rig count. Q3 saw a decline in the US oil rigs apart from the last week when it rose by 6. That is a fairly significant rise. This rise (and all rises in fact) can only be on the back of a steep rally in flat price and that the dynamic of US shale is that production can be turned on and off relatively quickly. Above $50 on WTi means producers can start hedging forward production, this I think we will witness over the course of the next week or so and back round the mulberry bush we shall dance all the way down to.....$45 on Brent? It would make sense for us to look at the god forbidden $ 4x handle before too long and then boom up we go again when the heroes in Vienna tell the market they will extend the production cuts. Ohhhhhhhh Viennnaaaaaaa. This opinion is purely based on no geopolitical factors not being involved, KRG is being monitored closely and this could have a short term effect on the market in terms of a spike before retreating back to normality. In other news yes I am keeping quiet about Arsenal. Commentators curse and all that....Good day and week to all.

Daily Oil Commentary

Morning all and Happy Friday. Brent closed down 0.49 last night to $57.41 and WTi closed at $51.56 down 0.58.

What has the week bought us? Well if you're Marilyn Monroe then you have a new neighbour for all of eternity, RIP HH. But what about the oil market? APPEC aside Brent has had a fairly dramatic week. We didn't get to the swimming costume Boat Quay run levels of $60 per bbl but I'm not going to lie, when $59.50 was being flirted with I was nearly getting ready. Since those dizzy heights crude has fallen however. W/O/W we are up 1.7%, exactly the same as last week. In fact September has seen close to a 10% rise on Brent. Impressive. So the question on everyone's lips, where do we go from here? Personally I don't see us rising above back to levels we were at during the start of this week. I see no real evidence that can bring us out of the range bound market we have been in for some time now. People seem to be ignoring the facts that arguably the world’s biggest swing producer, the USA, haven't really shown the ferocity in Q3 of production increases that they showed in the first half of this year.  This fact has been ignored by the bulls in the same way that a teenager ignores its Mother’s requests to clean their room. However it is inevitable that as nice as any Mum in the world is eventually you have to yield and I think the oil bulls may be told in the next couple of weeks to clean up their mess as well. The US rig count both this week and next I feel will be quite significant for the future of the demand and supply balance because let's face it, apart from some over enthusiastic economists I don't see where demand is increasing to the point of rebalancing the market. An increase in supply and we could see the market drop fast. All eyes on that later. I wish you all a smashing weekend.