Stopping Out Determining the Price | S6 E02

World of Oil Derivatives

Supply and demand modelling is no longer enough to accurately determine market value. The recent market has been a perfect illustration of this in key differentials in the oil market, which have been driven by stop outs, pushing market prices against the fundamental consensus. Example discussed are the North Sea differential rally in prompt DFLs, Brent Dubai's move against market consensus and propane volatility in US contracts.

Onyx Capital Group CEO joins Research Associates Martha Dowding and Vincent Wu (dialing in from our Singapore office), to review the latest week of trading in oil, how things are playing out and what to watch going forward.

Flat price surpassed $80/bbl on Friday on the back of Red Sea tensions, as the UK and US launched attacks on Houthi targets in Yemen.

The current market sentiment for Brent Dubai suggests a noticeable shift towards buying, with significant momentum on the buy side. Martha expresses confidence in the likelihood of this trend holding, despite attempts to sell off in recent days, there is evident support at current levels. Large market players are actively seeking to buy Brent Dubai, as indicated by changing flows.

Refinery margins are exhibiting strength across various products, particularly in EBOB and gasoil. Despite a total purchase of 292 kbbls by trade houses in June, July, August, September, and Q3, Q3 prices are historically high, while Q1 prices are comparatively less robust. The market is influenced by factors such as the Dangote refinery's impact and Pemex's anticipated boost in fuel production by 1.05mbpd, with RBOB crack low and increased U.S. exports to Australia and Mozambique.

In our macro-economic headlines to watch. The team discusses;

U.S. OIS curve (overnight index swap) is pricing 163 basis points of cuts by the Federal Reserve this year.

Inflation is grinding lower towards target rates and is no longer striking fear in the markets. In fact China is now clearly in deflation!

Manufacturing globally is weak, German industrial production just had its 6th consecutive monthly decline (down 4.8% YoY) and 14% below its pre-pandemic peak.

You can watch our Trade Idea of the week here: https://youtu.be/g1_AIsKe4-s
If you’d like to connect with Greg, Martha or Vincent on LinkedIn, click on the links below:

Greg Newman: https://www.linkedin.com/in/oilderivatives/
Vincent Wu: https://www.linkedin.com/in/vincent-wu-099816125/
Martha Dowding: https://www.linkedin.com/in/martha-dowding-ab84801a6/
Chapters for this episode are:
0:00 Welcome
0:50 This Week in trading
2:17 Brent Futures
7:54 Brent-Dubai
15:26 News in the Oil Market
23:34 Refinery Margins
27:53 Weather Events and the NGL Market
32:15 Macro News and Market Outlook