No chance of OPEC output cut, even after oil dips below $50 - Gulf delegates I have seen some articles in the media suggesting the rise in Saudi's OSP to Asia is a mark of their "strategic retreat". However I believe this analysis completely misses the mark and does not consider the impact of Libyan supply issues increasing light grades in the Med and North Sea. The vacuum of supply in the Med is supporting bids for Azeri light and others, thereby drawing supply from West Africa, North and Black seas, thereby increasing spot prices of WAF/BFOE/Urals crudes. The Saudi's know the markets in Europe are bid higher, so they have addressed that in two ways. First, they cut European destination OSPs to make their barrels more competitive and cheaper than the comparable lights in the Med and Europe. This is an attempt at gaining market share in the region against Russian and Azerbaijani exports. Second, they have raised the OSP for Asian destinations precisely because of strong bids in the Med/EU. The Saudis understand they can earn extra premium because the Med vacuum is causing WAF grades to appreciate, thereby making them less competitive to Arab grades. They can raise the OSP to Asia and still be cheaper than comparable grades out of WAF. They have shown zero signs of slowing production, in fact they are becoming more "aware" and aggressive in their pricing techniques.
So based on them having things arranged for 12 months out, do you think they are just planning to store it and hold for higher prices vs the standard storage trade where they have already sold the contracts a few months out? Article said less than $40,000/day, so on a 3 million barrel tanker that is like 75+ days of storage for $1/barrel, right? Sounds like they will be making some nice profits this year if things play out
I expect TI Oceania to hold a mix of BFOE as it's more profitable than the 12 month Dubai spread. The 1 year Brent spread (G5/G6) is trading around 10.00, while the 12 month cost is ~4.85/bbl. By my economics, that's a very low risk profit of $15mm on 3mm bbls (not accounting for insurance, bunkers, or financing charges).
I was hoping FRO would pull back some on yesterday so I could get a better entry, but so much for that. Still holding from 2.66 but would like to add more also.