| Commoditiy | Price | Weekly Change | 50day-Ave | 100day-Ave | 200day-Ave |
|---|---|---|---|---|---|
| Brent ($/b) | 79.71 | 8.22 | 66.38 | 64.70 | 66.39 |
| US WTI ($/b) | 72.98 | 6.67 | 61.56 | 60.44 | 62.67 |
| ICE Gasoil ($/MT) | 907.00 | 160.50 | 676.10 | 684.62 | 686.05 |
| Jet CIF NWE ($/MT) | 950.77 | 165.59 | 729.74 | 727.55 | 721.45 |
Conflict has erupted in the Middle East and Brent traded over 80 \$/b overnight, middle distillates also sharply higher this morning.
Brent markets finished last week around 72.50 \$/b, with the expectation that negotiations between Iran and the US would continue Monday and given the venue was to move to Vienna to include the International Atomic Energy Agency, there were reasons to think that talks were progressing onto a more detailed technical level. Throughout the talks a large-scale war with a disruption to shipping was certainly seen as a significant risk, but probably not the most likely outcome. Over the weekend, that worst case scenario has become the reality. On Saturday, insurance companies began telling shipping companies that they were increasing premiums or cancelling coverage through the Strait of Hormuz due to the conflict after Iran warned that the Strait of Hormuz was closed and the US said it was targeting Iran’s navy. Trump also warned said that the bombing will continue “throughout the week, or as long as necessary” suggesting quite an extended disruption. Yesterday things became more unclear after Iran said that the Strait was open, but also said that it had attacked three tankers, while sending a barrage of rockets across the Gulf. The US said it has sunk several Iranian naval vessels too. Brent opened at around 82 \$/b Sunday evening when oil markets open and on its first opportunity to react to this and then sold off back to 77 \$/b to then rally back to 80 \$/b this morning. Middle distillates have also opened sharply higher, gasoil up over 20%.
Amid the conflict OPEC+ announced a production increase over the weekend, although this will make little difference. The planned increase for April is 206 kb/d equivalent to around 0.2% of demand, but of that the only country that really follows these targets is Saudi Arabia and its contribution is 62 kb/d, equivalent to around 0.06% of demand, it’s very small. This of course is all academic if it becomes impossible to export oil.
Where oil goes from here really depends on how long the disruption goes on. Refineries cannot easily pause production or reduce capacity and will need cargoes that have been cancelled or are delayed in order to continue operating normally. Of course, they have known about this risk for a while and will likely have been building up inventory as a precaution. This morning Saudi Aramco has reportedly shut down the Ras Tanura refinery, largest refinery, 550 kb/d, in the region after reports of being hit by a drone attack. Trump said on Sunday morning that the bombing will continue “throughout the week, or as long as necessary”, but later in the day he said that the operation was ahead of schedule. The possibility of resuming talks has also been raised. If in the coming days, normality does resume, that would support an unwinding not just of the move up from Friday, but the also the risk premium connected with conflict with Iran than has built up from January. So, it is possible we see Brent return to 60 \$/b. It is still very hard to know how things will unfold though.
No representation or warranty, express or implied, is or will be made and no responsibility or liability is or will be accepted by Investec or its Affiliates in relation to the accuracy, reliability, suitability or completeness of any information contained in this document and any such liability is expressly disclaimed. This document does not purport to be all inclusive or to contain all the information that you may need. Investec gives no undertaking to provide the recipient with access to any additional information or to update this document or any additional information, or to correct any inaccuracies in it which may become apparent.
This document does not take into account the specific investment objectives, financial circumstances or particular needs of any recipient and it should not be regarded as a substitute for the exercise of the recipient’s own judgement and due diligence. Investec does not offer investment advice or make any investment recommendations. Recipients of this document should seek independent financial advice regarding the appropriateness or otherwise of investing in any investment strategies discussed or recommended in this document and should understand that past performance is not a guide to future performance, and the value of any investments may fall as well as rise.
Investec expressly reserves the right, without giving reasons therefore, at any time and in any respect, to amend or terminate discussions with the recipient of this document without prior notice and hereby expressly disclaims any liability for any losses, costs or expenses incurred by such recipient.
