Good morning.  New flow is very quiet to start the week with Iran saying they have no plans to reduce output and Iraq reporting that exports for September came in at 3.56m b/d (lower than the 3.6m b/d they reported late in sep).  Reuters ship tracking shows Middle east weekly crude exports lower for the 4^th consecutive week led by Iran.  “Exports from the Gulf plunged to 116.59 million bbl last week, a w-o-w drop of 8.33 million bbl. With the exception of the UAE, all other Middle East exporters recorded a drop in their weekly shipments.”  Middle east crude prices remain firm as 15 Dec Dubai partials traded in the window today.  Unipec, Totsa, Chinaoil, Reliance, and Equinor sold to BP, Shell, and Petro-Diamond.  Oct/Nov Dubai spreads are trading 80c back while Nov/Dec is trading 67c back.  Survey estimates as looking for Saudi to raise their Arab light OSP by 70c-80c m/m while ADNOC could raise Murban’s premium to Dubai by 45c m/m.  Front end vols are bid to start the day while there is more interest seen on blocks looking to roll wingy upside Brent calls out the curve.  In the very front wingy calls are offered this morning via ratio structures.  Z8 and F9 wingy calls are already lower on the day vs settles Friday.  Full list of block trade highlights from this morning is below.    

 

Top stories listed below

Iran has no plans to reduce oil output -Nat’l Iranian Oil Co boss – Reuters News

Iraq’s September Oil Exports Dropped to 3.56m b/d: Ministry

Middle East Crude-DME Oman stays above Brent; Dubai edges higher – Reuters News

Middle-East Weekly Oil Flows – Iran exports nosedived to 2 year low at 7.06 million bbl – Reuters News

Adnoc Seen Increasing Murban OSP by 45C M/M for Sept.: Survey

Uncertainty clouds Saudi OSP expectations after DME Oman rally – Platts

ESPO price surge compels refiners to look for alternative crudes – Platts

LIBYA TANKER TRACKER: Flows Rise as Oil Output Hits 5-Year High

U.S. oil refiners’ weekly capacity seen up 131,000 bpd -IIR – Reuters News

U.S. Refiners Struggling to Consume More Low Sulfur Crude: JBC

Asia Fuel Oil-Arbitrage spread highest in at least 3 years, October arrivals seen tighter – Reuters News

 

 

Implied Vol Change this morning

WTI Vol	1-Oct	Change		BRT Vol	1-Oct	Change
X8	25.75	0.86		Z8	26.15	0.74
Z8	25.19	0.07		F9	24.82	0.12
F9	25.38	-0.02		G9	25.30	0.1
G9	24.39	-0.06		H9	24.44	0.03
H9	24.15	-0.04		J9	24.23	-0.12
M9	23.64	-0.08		M9	24.13	-0.11

 

 

Block Trade Highlights Seen This Morning

BRT Z18 77 Put x83.00 TRADES 47 50d 12d

BRT F19 90 Call x82.40 TRADES 95 500x 19d

BRT F19 71.50/68 1×2 Put Spread TRADES Flat 300x

BRT F19 90 Call vs BRT H19 100 Call TRADES 40 1,000x

BRT F19 98/94 2×1 Call Spread TRADES 4 300x

BRT G19 90 Call TRADES 140 200x

BRT G19 82 Call x82.00 TRADES 392 400x 54d

BRT H19 85 Call x81.90 TRADES 324 100x 42d

BRT J19 75/65 1×2 Put Spread x81.40 TRADES 116 100x 9d

BRT M19 85 Call x80.90 TRADES 406 100x 44d

BRT M19 50 Put TRADES 13 200x

BRT M19 66/60 Put Spread x80.75 TRADES 72 150x 6d

BRT M19 90 Call x80.75 TRADES 250 300x 31d

 

 

 

Iran has no plans to reduce oil output -Nat’l Iranian Oil Co boss – Reuters News

Iran has no plans to reduce oil production, the head of the state-run National Iranian Oil Company, Ali Kardor, said on Monday, according to the Tasnim news agency.  The United States aims to reduce Tehran’s oil revenue to zero in an effort to force Iran’s leadership to change its behaviour in the region.  U.S. officials have said that new sanctions will be imposed on Iran’s oil sector beginning on Nov. 4.  Iran is experiencing no issues with receiving income from its oil sales, Tasnim reported Kardor as saying.

*First offering on Iran Energy Exchange will be in batches of 5k bbl, for a total of 1m bbl, state-run Islamic Republic News Agency reports, citing interview with Ali Kardor, CEO of state crude producer National Iranian Oil Co.

 

Iraq’s September Oil Exports Dropped to 3.56m b/d: Ministry

Iraq shipped 3.56m b/d last month, Oil Ministry Spokesman Asim Jihad says in emailed statement.

Total September exports of 106.795m bbls compare with 111.06m bbls in August (3.58m b/d)

Iraq generated $7.912b from oil sales in September

Oil sold at an average price of $74.09/bbl

Exports were all from southern and central fields, none from Kirkuk

 

Middle East Crude-DME Oman falls below Brent; Dubai edges higher – Reuters News

The Middle East crude benchmarks remained firm on Monday with DME Oman settling below Brent after climbing above Brent last week.

SAUDI OSP PREVIEW: Saudi Aramco is expected to raise the official selling prices for all crude grades it sells to Asia by 80 cents a barrel for November, a trader said late last week.

IRAN: China’s Sinopec Corp is halving loadings of crude oil from Iran this month, as the state refiner comes under intense pressure from Washington to comply with a U.S. ban on Iranian oil from November, said people with knowledge of the matter.  The sources did not specify volumes, but based on the prevailing supply contract between the top Chinese refiner and the National Iranian Oil Company (NIOC), its loadings would be reduced to about 130,000 barrels per day (bpd).

INDIA: India’s Mangalore Refinery and Petrochemicals Ltd (MRPL) is seeking crude for delivery in November, according to a tender document.  The tender closes on Oct. 3 and is valid until Oct. 5.

WINDOW: A total of 15 cash Dubai partials traded on Monday with Chinaoil and Unipec making up the bulk of the sellers list.

 

Middle-East Weekly Oil Flows – Iran exports nosedived to 2 year low at 7.06 million bbl – Reuters News

Crude exports from the Middle East continued their unabated fall for a fourth consecutive week, largely on the back of plummeting exports from Iran, which were at a two year historical low last week, with the country registering the steepest weekly fall amongst other exporters from the region. Exports from the Gulf plunged to 116.59 million bbl last week, a w-o-w drop of 8.33 million bbl. With the exception of the UAE, all other Middle East exporters recorded a drop in their weekly shipments. Similarly, condensate exports from the Middle East dropped to 1.67 million bbl, down from 2.77 million bbl the week prior, with all volumes exported from Qatar, flagging the second week in a row where no condensate exports from Iran were observed.

 

Saudi crude exports for the week ending September 23rd are revised to 49.41 million bbl on account of one Bahri VLCC, the ‘WATBAN’, revealing its destination, heading towards Yanbu to discharge. Saudi flagged Bahri VLCCs crossing Bal El Mandeb straits continue to keep their AIS offline. The Kingdom exported 47.81 million bbl last week, a w-o-w drop of 1.59 million bbl. The drop came on the back of reduced lifting by South Korea which reduced quantities by half to 4 million bbl. Intake by Japan on the other hand increased to 11.2 million bbl, the highest weekly intake of Saudi crude by the country in six months. Lifting by India and the US also increased to 3.5 and 6.2 million bbl respectively. Exports for September stood at 6.95 million bpd, up from 6.9 million bpd in August.

Iraq crude exports from Basrah dropped for a second consecutive week to 23.33 million bbl, a weekly drop of 1.4 million bbl. Unlike last week, lifting by China and India, the traditional bigwigs, decreased by 2.9 and 5.4 million bbl to 4.8 and 3.7 million bbl respectively. No Iraqi barrels were seen heading to Japan and South Korea last week, while on the other hand US intake increased to 1.9 million bbl. Interestingly enough, in spite of the recent reports of the country ramping up its exports from Basrah, volumes for September, including Kirkuk grade exports which remained flat at a total of 8.4 million bbl for the month, are assessed at 3.65 million bpd, a 200,000 bpd decline from 3.85 million bpd in August.

 

Iranian exports nosedived to their lowest level since at least July 2016, to 7.06 million bbl, a steep w-o-w drop of 3.97 million bbl. Only 4 vessels were observed to load from the country last week, all from Kharg, out of which 3 were NITC VLCCs, all heading to India and a sole Suezmax bound for Spain. Chinese lifting, notably fell to zero last week, the first such instance in more than six months, and a telling tale of how hard the sanctions are hitting the country with its traditional allies foregoing the Iranian barrels. Please note, as earlier reported, NITC vessels are keeping their AIS transmitter off throughout their movement in the Gulf and hence, some flows may be added in retrospect. While no new addition to the storage fleet was observed last week, the previously identified storage tankers i.e. NAVARZ, HEDY and HUMANITY are still not transmitting their latest position for almost 2 weeks now, therefore we reserve a conclusive assessment for storage volumes. Another storage tanker, the ‘HALTI’, departed from the Kharg Island area and is presently at Fujairah showing its destination as Dalian. However, two other NITC VLCCs, the ‘SEA CLIFF’ and the ‘HAPPINESS’, are also showing their destination as Dalian, China but remained offline for almost 10 days after departing the storage area. Hence, these may not be actual final destinations. Exports for September plunged to 1.57 million bpd, down from 1.84 million bpd in August.

 

Adnoc Seen Increasing Murban OSP by 45C M/M for Sept.: Survey

Abu Dhabi National Oil Co. seen raising Sept. Murban crude’s premium to Dubai benchmark by 45c/bbl m/m, according to a Bloomberg survey of 6 refiners, traders.

Sept. Murban OSP forecast at $3.01/bbl above Dubai price versus $2.56/bbl premium for Aug.

Three traders predict 40c-45c increase, 1 other sees 45c-50c gain and 2 others estimate 50c hike

 

Uncertainty clouds Saudi OSP expectations after DME Oman rally – Platts

Saudi Aramco is largely expected to raise OSPs for its crude oil grades heading to Asia in November, prices that the kingdom will issue in the coming days, traders said Monday.  However, the specifics for the latest round of OSPs were shrouded in uncertainty following the robust trading activity in the Middle East sour crude market last week, they added.  "Really not sure what is going to happen," one refiner said on Monday.

Traders and end-users polled by Platts indicated that the producer would likely hike the price of Arab Light to Asia by around 90 cents/b from the October OSP.  The Platts cash Dubai M1-M3 spread rose by 89 cents/b month on month, from an average of 51 cents/b in August, to $1.39/b over September. The spread is understood to be a component of Saudi’s pricing methodology, and is used by crude traders as a barometer of spot market strength.  The 89 cents/b rise in ‘structure’ was considerably bullish, crude traders said. Fundamentally, they cited year-end Asian buying as the main demand-side factor behind a stronger market structure, firmer refining margins and the subsequent hike in OSPs.  On the supply front, concerns about replacement Iranian barrels after sanctions snapback remain a key price driver, they said.  Saudi Arabia is also expected to raise the OSPs for other grades to Asia, such as Arab Extra Light and Arab Medium, but traders were less willing to throw out a calculated estimate or a range, given the uncertainty. "No one knows, if they want, they can raise it by [a little or a lot]," added a crude trader.

 

THE OMAN FACTOR

"It [Oman] is a big uncertainty this time around," a market source said of the subject.  The uncharacteristic price volatility for Oman crude futures traded on the Dubai Mercantile Exchange last week, the latest component for Saudi Arabia’s crude oil pricing formula, was the main reason behind the uncertainty, market sources said.  The November Oman futures contract experienced a sharp hike in its final week of trading, pushing its price up several percentage points, and causing widespread concern among traders of Middle East crude oil.  The DME Oman marker price at 4:30 pm Singapore time was set at $78.04/b on September 21. By the same time Wednesday, September 26, it had climbed 14% to $88.96/b, pushing past global crude benchmark ICE Brent in the process.  Last Friday, the marker eventually settled at $84.86/b on the last trading day of the month. This is a jump of 8.74% week on week, and a premium of $3.06/b to ICE Brent at the Singapore close.  The spike pushed the monthly average of the DME marker up by $1.83/b within the week, Platts data showed.  Such moves are considered significant and could result in higher than expected OSPs from Saudi Aramco.  Traders, sellers and buyers alike were very concerned on whether Aramco would incorporate the final week’s price moves into its OSP for the month of November.  "If they [Aramco] do such a thing they will crash margins," the first crude oil trader said.  "It affects the OSP, hedging, market trading…everything," they added.  "People are not going to buy Aramco [crude] with that OSP," added a second trader.

 

OSP METHODOLOGY

Middle East oil producers such as Aramco issue official selling prices as differentials to regional benchmarks for the crude oil grades on a monthly basis.  Although exact formulae and methodology are kept under wraps, Aramco is largely understood to take into account the monthly change in the ‘Dubai structure’ i.e. the spread between the first three trading month of physical Dubai crude oil reported by Platts. The kingdom is understood to track the changes in this cash Dubai M1-M3 to gauge direction of the crude oil market in Asia.  Earlier this year, Aramco announced that it would change the OSP formula for its crude oil destined for Asia come October 1. It intends to replace the current pricing formula — which is an average of Platts Dubai and Platts Oman assessments — with the average &P Global Platts cash Dubai price assessment and the average monthly DME Oman crude futures price.

 

ESPO price surge compels refiners to look for alternative crudes – Platts

Skyrocketing premiums for Far East Russian ESPO Blend crude oil loading from Kozmino over October and November has compelled refiners to search for cheaper alternatives, sources told S&P Global Platts on Monday.  Premiums for M2 November-loading ESPO crude reached near five-year high on Friday, where it was assessed at $6.75/b to Platts front-month Dubai assessments, up 50 cents/b from Thursday. The premium stood at the same level on December 4, 2013, data from S&P Global Platts showed.  "I expected ESPO premiums to go around mid-$4s to Dubai this month, but close to $6/b and above is a shock," a Singapore-based trader said.   Cargoes from the ESPO Blend’s November-loading program offered by equity holders were heard to have been picked up at premiums of around $4.85/b to as high as $6.75/b to the mean of Platts front-month Dubai assessments, market sources said.  Overall front-month premiums for ESPO Blend crude averaged $4.39/b in September, compared to $2.51/b in August, Platts data showed.  Growing demand from China, a favored destination for the Far East Russian grade, coupled with the fundamental strength seen in underlying Dubai prices and robust refining margins, has contributed to the rising spot premiums, market sources said.  The spike in premiums has attracted interest for similar middle distillate-rich sour crudes, one such possibility being ADNOC’s flagship Murban grade, trade sources said.  "Given where ESPO premiums are, it opens up the window for Murban cargoes", a crude trader said.  Being more distillate-rich, ESPO Blend in general demands a quality premium over Murban and a shorter voyage journey from the port of Kozmino to China provides a freight advantage as well, sources said.  The recent surge in spot premiums however may have resulted in Murban grades looking more economically viable to source instead of ESPO, said sources.  Barely a month after trading at substantial discounts, premiums for light sour crude grades such as Murban rose to trade in premiums in the month of September.  "For mediums and heavies it [higher demand] was expected, [it is] very surprising for the light sour end," a seller of Persian Gulf crude based in Singapore said last month.  Robust refining margins for middle distillates, combined with a closed arbitrage from the West of Suez to Asia, spurred demand for light sour Persian Gulf crude grades this month, sour crude traders said.  In early September, November-loading cargoes of Murban and Das Blend crude grades traded at premiums of around 35-45 cents/b to their respective OSPs. In subsequent weeks, Murban cargoes traded during the Platts Market on Close assessment process, at premiums ranging from 45 cents/b up to 60 cents/b, showcasing firm Asian demand for the grade.   However, not all Chinese independent refiners that run ESPO have the capacity to switch fluidly to Murban or similar Persian Gulf crudes. This may cap the upside in premiums for these barrels, sources said.  "Unlike majors, Chinese independents don’t have the capacity to switch grades. They would prefer to stick to the grades they are used to running," a China-based crude trader said.  "Therefore ESPO would still be bought," he added.

LIBYA TANKER TRACKER: Flows Rise as Oil Output Hits 5-Year High

Libya’s observed crude and condensate exports rose in September to the highest level since February, according to Bloomberg tanker tracking, as the chairman of the state-run NOC says production climbed to the highest since 2013.

Libya’s observed crude and condensate exports rose in September to the highest level since February, according to Bloomberg tanker tracking, as the chairman of the state-run NOC says production climbed to the highest since 2013.

• Observed exports from tanker tracking rose for a second month to 1.09m b/d in September, up from revised 1.03m in August
• 47 cargoes including 31 Aframaxes, 15 Suezmaxes, 1 Panamax loaded in September, totaling 32.7m bbl
• Tanker tracking showed following volumes in thousands of b/d to major individual destinations:

Destination	September		August
Italy	296	vs	344
France	103	vs	158
Spain	102	vs	146
China	153	vs	129
Singapore	73	vs	48

 

• Tanker tracking showed following exports in thousands of b/d through Libya’s export terminals:

Terminal	September		August
Es Sider	247	vs	323
Mellitah	138	vs	154
Zawiya	215	vs	151
Hariga	183	vs	129
Zueitina	153	vs	95
Ras Lanuf	93	vs	58
Brega	40	vs	46
Farwah	20	vs	39
Bouri	0	vs	34

 

 

U.S. oil refiners’ weekly capacity seen up 131,000 bpd -IIR – Reuters News

U.S. oil refiners are estimated to have 1,360,000 barrels per day (bpd) of capacity offline in the week ending Oct. 5, increasing available refining capacity by 131,000 bpd from the previous week, data from research company IIR Energy showed on Monday.  IIR expects offline capacity to rise to 1,618,000 bpd in the week to Oct. 12.  The following are IIR weekly figures for offline capacity (in thousands of bpd):

Week ended Friday	Oct. 1	Sept. 28	Sept. 26
10/12/18	1,618	1,618	–
10/05/18	1,360	1,444	1,529
9/28/18	1,491	1,512	1,570
9/21/18	983	1,032	1,032
9/14/18	637	695	695

 

 

U.S. Refiners Struggling to Consume More Low Sulfur Crude: JBC

There are growing indications that U.S. refiners are struggling to take more advantage of the U.S. shale boom, JBC Energy says.

Strong growth in API gravity of U.S. crude intake has faded in recent months

Outside of a few outliers, a ceiling appears to have been reached, absent investment in downstream capacity

Relative shift has meant a steep rise in low sulfur fuel oil produced in the U.S.

Trend not just a reminder of light-sweet crude intake, but also that the U.S. will be a major supplier of compliant fuels in the context of IMO 2020

Separately, says that U.S. gasoline demand “seems to be bearing out many of the factors that should be putting the brakes on oil demand growth at present”

Sees gasoline demand growth 24k b/d y/y on average over the last 3-months, despite a strong U.S. economy

 

Asia Fuel Oil-Arbitrage spread highest in at least 3 years, October arrivals seen tighter – Reuters News

The front-month East-West (EW) arbitrage spread rose to its widest in at least three years on Monday, as expectations of tightening fuel oil supplies in Asia continued to underpin sentiment.  A total of 3 million tonnes-3.5 million tonnes of Western fuel oil supplies are expected to arrive in Singapore this month, down from about 3.5 million tonnes-4 million tonnes in September.  The 380-cst East-West arbitrage spread for November climbed to $24.75 a tonne, its highest since records began in late-2015, according to Thomson Reuters data. This compared with $24 a tonne on Friday.

 

TENDERS

– The UAE’s Adnoc has offered up to 90,000 tonnes of straight-run fuel oil (SRFO) for loading over Nov. 23-30 from Ruwais, in a spot tender that closes on Oct. 2 and has a two-day validity.

– Saudi’s Samref sold 80,000 tonnes of 650-cst to 700-cst high-sulphur fuel oil loading from Yanbu on Oct. 7-9 to Chevron at an unknown price level.

– Kuwait’s KPC sold up to 80,000 tonnes of 380-cst HSFO with a maximum 4.2 percent sulphur content for delivery on Oct. 6-7 to Vitol at an unknown price level.

 

U.S. LOW-SULPHUR FUELS

– Owing to its booming shale industry, the United States is likely to become an important supplier of low-sulphur marine fuels ahead of major new emissions regulations in 2020, Vienna-based consultancy JBC Energy said.

– "The (United States) is likely to emerge as a strong supplier of compliant fuels in the coming quarters in the context of the IMO sulphur spec switch," said JBC.

– Fuel oil with a less than 1 percent sulphur content has averaged well over 32 percent of total U.S. fuel oil supply in the last three months of data, compared with just some 26 percent a year earlier, JBC said, citing data from the Energy Information Administration.

– The IMO’s sulphur cap is expected to prompt refiners to boost processing of lighter crude grades, like U.S. shale oil, because they produce cleaner, low-sulphur fuels.

 

Jonathan Wagner

Ion Energy Group

88 Pine Street, Suite 15

New York, NY  10005

Direct: 212-709-2261

Cell: 914-843-6986

Wagner.j@ionenergygroup.com