Master plan of OPEC

The important oil news over the weekend is clearly the decison by OPEC not to cut output further, but to increase compliance. This in effect is a cut on its own, though a small one. SFOT does not like to comment too much on these stuff and prefers to leave it to more seasoned OPEC watchers. However, a few little points worth noting. 1) The official communication does not seem to be as urgent as the past few ones in which they fear further price collapse. In fact, that prices in both prompt and deferred has been stabilizing, and that time spreads are strengthening seems to have made them a little more comfortable at this point. 2) That Saudis still run OPEC. They only broke their silence last tuesday re what they like out of the meeting and the outcome was as such. In any case, SFOT believes what OPEC has done is essentially to put a floor to the price of oil. Floating storage will continue to clear itself and the supply demand balance will not look as ugly in a few month's time, unless of course we go a lot deeper in this recession/depression. Flat price will not rally by a huge amount, however, which will be key for demand going forward.

Back to the barrel, a small rally in product cracks proofed short lived, as distillate cracks continue to weaken from its midweek high. There seems to be there are some end users hedging their consumption 2-3 year out hence giving it some sort of strength. However, the supply dynamics still look ugly. After a draw through Feb(probably due to colder winter), heat oil stocks in Europe are now building up again. The worst of the bunch is JET oil in Europe where stocks are at multi-year highs. Jet prices are now weakest for a long time, relative to crude. Air passenger traffic is still on the slide and will get worse. However, gasoline cracks remains strong. After a brief pullback, SFOT reckons Gasoline is going to get even stronger relative to the middle of the barrel going into the driving season.