Greetings from the east

Happy new year to all. Having endured much turbulence in the oil space in 2011, SFOT has emerged relatively ok and is now residing in another part of the world where trading the oil market means going to bed at 3am. He has much to adjust to but one thing that needs no adjustment is the random volatility of crude prices. Just when prices look to be dominated by potential Iranian crisis, daily range narrowed and converged before both upside and downside stops got taken out all in a matter of 4 hours. That should leave a few wounded but also presents opportunities to get involved.

Mar12 Brent

While the likes of Goldman and other research houses have cited various upside target, SFOT is inclined to think this move will be yet to materialize. The main reason being that Iran will have to negotiate a buyer(china) at depressed prices initially while the other factors for a push towards a real spike in oil prices are not in place just yet. Smart money though, is on buying very low delta longer dated calls. You just never know what can pan out in the coming year with potential trouble in Nigeria, producing double the output of Libya, while european woes are still very much in the foreground with oil demand in europe falling fairly quickly.
The recent problem with refiner Petroplus is just another drag on demand in europe, amongst a weak EUR and a very mild winter, but met with some good news when they managed to secure temporary credit for some of their refineries. This recent episode has really given refining margins a boost which, in my view, is short lived. While we have a good amount of refinery maintenance going on in the next 3 months or so, there are enough capacity out there to warrant a cap in margins. However, downside would be limited unless demand falls even faster in the coming months.

Dubai Crude cracking margin Singapore

Forties crude cracking margins Europe

While rumours of a RRR cut by China pre chinese new year is circling round the market and will certainly give the market a small boost, one doubt there is very much appetite for risk at this time of low liquidity. Well good luck for the day and i shall endeavour to have more useful stuff back here soon.