| Commoditiy | Price | Weekly Change | 50day-Ave | 100day-Ave | 200day-Ave |
|---|---|---|---|---|---|
| Brent ($/b) | 88.63 | 0.91 | 83.12 | 92.88 | 82.16 |
| US WTI ($/b) | 81.98 | -0.15 | 79.33 | 88.81 | 77.20 |
| ICE Gasoil ($/MT) | 1,246.75 | -58.00 | 1,091.95 | 1,150.08 | 964.62 |
| Jet CIF NWE ($/MT) | 1,277.72 | 20.92 | 1,127.73 | 1,241.93 | 1,054.75 |
Brent climbed to the high 80 \$/b range at the beginning of last week and is still there this morning. It seems the market is no longer optimistic about a deal being reached between the US and Iran. In previous weeks oil markets had fallen after Qatar and others had claimed there had been progress in talks. Mutually incompatible requirements made by the US and Iran point to continued deadlock in efforts to reach a lasting agreement. Both sides claim to be in control of the Strait when it is clear neither is, shipping remains severely disrupted and attacks on vessels continue. The Memorandum of Understanding signed in June expires today; it is hoped to be extended. This morning Iran’s Foreign Ministry spokesperson claims the 60-day deadline, expiring today, has “lost all relevance” given the conflict that has happened over the period, violating the ceasefire. Even if it were extended, while that would be welcome it does not of itself represent progress towards resolving the current intractable dispute. It seems both sides are still hoping that the other will cave in first. Trump recently said that Americans should accept that higher prices at the pumps are a price worth paying for ultimate success and the US aircraft carrier USS Abraham Lincoln, which has been at sea for a very extended period, is due to be relieved by the USS George Washington as the US digs in for the long haul.
It is interesting to see the impact on longer dated prices. The Dec 26 Brent contract is trading at 84 \$/b and is middle of its trading range since the war started, it was 65 \$/b beforehand. It’s a similar story with Dec 27 which was also 65 \$/b before the war started and is in the middle of its ranges since the war started at 75 \$/b. It’s a different story with gasoil which drives middle distillate prices like diesel and jet fuel, where both the Dec 26 and Dec 27 futures contracts have reached fresh highs. So, while the market was expecting that the very wide premium of middle distillates over crude was going to narrow, the market is now expecting that is going to remain wide. As well as the crisis in the Middle East the market also has to contend with the damage to Russian refinery capacity given that it was an important supplier of refined products.
The question is then what does this mean for consumers looking to lock prices in for next year. It’s a very difficult dilemma for consumers, because if the strait of Hormuz is reopened in a sustainable way, there is a prospect of the market being oversupplied and prices falling heavily. So, the temptation is to wait for that to happen, but in the meantime, pressure in the market is building up leading to higher for longer being priced into middle distillate forward curves. In the short term, the market could take some direction from whether the Memorandum of Understanding period is extended or not. There is potential for Brent to rally through 90 \$/b if is not extended, especially if there is a resumption of hostilities with the possibility of a retest of the July high just over 100 \$/b. If the MoU is extended, especially if there is a talk of reengaging on talks, we could see Brent revisiting the lows of this month under 80 \$/b.
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