Margins and Fuel oil and "Big PNL"?

OPEC has lowered their oil demand forecast again, this coming just one month before they are scheduled to meet again. I guess this will probably tilt their decision to cut output further in the March meeting given they have been unable to stop the imbalance of excess crude stocks with their previous cuts. This is panning out fairly well within SFOT's scenario that OPEC has to implement more cuts to initally stop stocks from building further, therafter stocks to start drawing. As i am unable to make any estimate as to how long it will take, i prefer to let the market lead the way as Brent timespreads would have to recover a lot more than its current weakness for stocks to begin drawing down. While the market prepares for another round of OPEC cut, sour crude will remain strong. Brent-Dub spreads are trading at their strongest for 6 months, which is a key factor supporting strong Fuel oil cracks. Note that the loss on selling residual fuel oil has come in from over $40 to now just $8 per barrel eqivalent. SFOT continues to favour being long sour crude vs sweet in this scenario. Brent is valued at $3.50 premium over dubai in Q209, which is an attractive option to hold. Otherwise, as refineries start their turnaround and/or cut their oil input, stocks of end products will cease building, and this will benefit both Gasoline and residual fuel oil further. Hence, being long of Fuel oil and Gasoline cracks still remains attracive to SFOT.

Having seen many reports about the insanity of WTI spreads, SFOT has decided, with many other participants, that it is best to look at Brent as a global crude price benchmark rather than WTI. That Mars crude, a much heavier crude with higher sulfur content is trading at a $7 premium to WTI makes the world crude oil benchmark a laughing stock. SFOT notes that there has been small buying in Jet fuel since he posted the article yesterday, presumably by guys with some storage space or refineries about to enter maintenance.

A colleage of mine managed to capture this shot in Mayfair, London yesterday. Seems like there is sstill a little bit of decadence around. Good luck and good trading to the BSD owner of the above.