Daily Oil Report - 28th September 2018

Unstoppable Brent: Prices rallied strongly on Friday with gains over a $1 for Brent and WTI. The rally came despite a stronger USD index. Q3 was a very supporting quarter for oil prices. Brent at the beginning of this quarter was at $77, with lows seen at $70, so the rally to $82 and been very impressive. Brent has rallied for the 5th quarter in a row which is the longest streak since 2008.

Spare capacity continues to dominate headline with no one knowing how much can Saudi ramp up to. They are meeting Kuwait (see link 1) to start discussing the possibility of restarting Neutral Zone production which can increase production by 500KBD. To add to Saudi’s headache, Trump reportedly spoke to King Salman this weekend and most likely is putting further pressure to increase production. Iran continues to have a difficult month, with latest news that Sinopec has reportedly halved the Iranian volumes (around 130KBD) due to US pressure.

Brent Nov contract expired on Friday, which now makes Dec-18 the prompt contract.

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In non-oil news, base metals base metals rallied by nearly 1% as China enters Golden week holiday period from Monday. Coal continues to have a great year and hit news YTD highs.

On currency front, dollar continues to be the king with dollar index making slow gains and emerging market currency woes continues. There is a risk that high oil prices and emerging market currency weakness might weaken oil demand by 100kbd next year (see link 2)

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Russian Oil Production: Latest data for September has put Russian oil production at 11.347 mmbd. That is an increase of almost 400KBD from 4 months ago which is above the 300kbd that Russia had promised to cut when it joined forces with OPEC last year. A weaker rouble and high oil price environment is a great time for Russian oil producers.

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