TOCOM Energy

Last week, oil was positive for much of the trading session after comments from Saudi Arabia seemingly putting a floor under the market. However, there are increasing signs that the Iran nuclear deal is on the brink being revived as the United States has sent its response to the European Union on a proposal to try to save the deal, investors remain cautious when taking a long position.
Middle East medium sour crude oil prices has rallied by around 6% since the Saudi made the comments, the Dubai benchmark was assessed at a near four-week high of $98.8/b last Thursday. Although Prices were lower Friday, it still made gains versus the North Sea marker, crunching the November Brent/Dubai cash spread by more than $0.7/b on the day to just $1/b and the narrowest since late 2020. While JPX Dubai and ICE Brent November contract was trading at equally 92 and $99/b respectively.
More specifically , Saudi Arabian Energy Minister said extreme volatility and lack of liquidity mean the futures market is increasingly disconnected from broader market fundamentals and that OPEC+ may be forced to cut production.

This is a strong signal Saudi sent to the market that it will continue to manage oil supply. Prices have also found support in the latter part of the week amid a growing consensus among OPEC producers that a quota reduction is on the cards with a host of producer countries backing the Saudi comments.
However, an immediate output cut is unlikely with the group set to increase quotas by a modest 100,000 bpd in September, but the wider OPEC+ group is expected to keep reductions as an option in the event of sanctions being lifted against Iran, or a sharp downturn in demand and the monthly meeting structure provides a mechanism for rapid production pivots.

On the demand side, investors globally kept a close watch on Federal Reserve Chairman remarks on Friday.
In a keynote speech at the Federal Reserve's annual meeting, Powell said that the path to reducing inflation would not be quick or easy, adding that the task requires using the tools forcefully to bring demand and supply into better balance. Doing so, would likely result in some weakening of the US economy and job market.
While Powell did not offer any indication whether the Fed's rate hikes of 75 basis points each would be repeated at its meeting next month, he sent the clearest message yet that right now, fighting inflation is more important than supporting growth and the central bank was committed to more restrictive policy in order to rein in inflation

While the macro-economic outlook remains challenging due to the lower growth outlook and recent dollar strength, the oil product markets have nevertheless managed a strong rebound this past week.
Asian diesel cracks in Singapore hit fresh seven-week highs as Wednesday's EIA report added further bullish pressure to the middle distillates market. The data showed that US distillate stocks fell unexpectedly in the third week of August as exports jumped to a one-month high. Diesel prices have demonstrated exceptional strength this year, flipping to a premium to gasoline of some $20 per barrel over the summer months, and market data indicates this trend is far from over.

In the European market, diesel cracks may to rise to $70/b again this winter, with Europe short around 1.5 million bpd of gasoil, that may even be exceeded as consumer gas-to-oil switching picks up.
On the other hand, European natural gas prices resumed its upwards trend with the benchmark TTF price for Oct trading at fresh highs of over €300/MWh late Friday, in part lifted by delays to the restart of US Freeport LNG terminal. As an increase of $10/mmBtu in the natural gas price usually adds around $1.0-1.5/bbl to refiners' variable energy cost, there’s little chance for downside in product cracks as high production costs remain little affected by changes to crude supply. These higher costs are likely to be passed through to consumers amid persistent price volatility and pose a tougher challenge to control inflation.