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THE ONYX VIEW
SEPTEMBER 2018

Published 18 SEPTEMBER 2018

 

What do we expect NEXT MONTH?

 

DUBAI BENCHMARK TO HOLD STRONG

With long positioning spilling over from last month and Iranian sanctions impacting November barrels, we expect strength in the Dubai benchmark. It would be sensical for those with exposure to Iranian barrels to cover their short physical positions with similar crude grades. The Dubai benchmark provides traders with the opportunity to do this, as the barrels can act as substitutes for Iranian crude oil grades. Because of this, we would expect the speculative length in Dubai to also be long.

 SWEET SOUR WEAKENING

We expect the barrels from the US to continue to apply pressure to the light sweet crude oil market, particularly in Europe. This coupled with the concerns surrounding displacing Iranian barrels, can expect to put pressure on sweet-sour differentials, such as Brent-Dubai. 

Flat price and time spreads: are we in a bubble?

After most of the shorts were covered in August in the Brent futures contracts, we see the upside as limited. We will require evidence of a tightening crude market to justify further rallies. However, it is likely that the open interest is again starting to exhaust as the evidence suggests reduced volumes and larger ranges in both the outright and time spreads.  

We expect the weakness in Brent-Dubai as a pseudo for pressure to light sweet crude vs heavy sour crude