The water has been anything but calm here in the North Sea, with the Dated Brent complex surging up into October amid a more robust futures complex and supported physical differential. The Dated physical was bid above $1/bbl on 10 Oct over significant buying by Geneva-based trade houses in prompt CFD rolls. However, this bullish tide flipped following 11 Oct. We saw a trade house selling rolls out of 28-01 Nov and 04-08 Nov in good volumes on 11 Oct, only to be met by another trade house on 14 Oct who sold it down significantly. We saw the Geneva-trade house buying flow vanish this week, with majors shifting to selling the prompt Dated complex. In the physical window, BP, Glencore and Totsa were seen offering Ekofisk and Glencore was also seen offering Forties. In addition, we now see Ekofisk setting the curve, with the physical differential now at $0.46/bbl. Adding to the newfound bearishness, the front-month Brent futures contract dropped from an intraday high of $78.30/bbl on 14 Oct to $74.35/bbl the following afternoon. We see the market growing weary of a geopolitical risk argument at this point, with the Washington Post reporting that Israel has agreed to target military sites in Iran – and not attack Iranian oil and nuclear infrastructure as the market had previously feared.
On the other hand, we see growing worries surrounding the state of oil demand in the coming future, with OPEC slashing its outlook on world oil demand in 2024 and 2025 due to a decline in China’s projected oil demand in 2024. In line with this bearishness, the Bal-Oct/Nov’24 Dated dropped from $1bbl on 10 Oct to below $0.15/bbl on 15 Oct (at the time of writing). The implied physical forward curve anticipates another drop in the physical, and considering the substantial selling in 28-01 Nov and 04-08 Nov CFDs and rolls, we may see more selling once the 10-30 day strip mainly comprises of Nov’24 cargoes.
Finally, during the last report, we noted that the market looked “short-term bullish and medium-term bearish.” We’ve got the short-term bull out of the way, with the formidable bear claws sharpened and here to stay.
