Technical & Fundamental Oil Reports Specialists

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Bring in the adults

Published Monday, June 22nd, 2015

The financial markets were fixated by Greece and the Federal Reserve last week. Will Greece default and when will the Fed raise interest rates? The same questions were being asked a month ago and the month before that and they may still be being asked in a month’s time. Greece will not be in default as defined by the credit agencies even if it does not pay the IMF on June 30, although as far as Christine Lagarde is concerned that is D(efault) Day, the end of the line and the day after which the current bailout program dies. This will happen she said cuttingly on Thursday, unless we can “restore the dialogue with adults in the room”.

Oil prices are running in the slipstream of the currency markets and are therefore at the mercy of the daily change in mood towards the outcome of these two events. With nothing else new to colour oil sentiment it was dollar weakness that provided price support last week, blunting the impact of physical fundamentals. The statement and press conference following the FOMC meeting were seen as dovish with an emphasis on a very gentle rise in rates once the gun is fired. The Fed would like to see more evidence that “a moderate pace of economic growth will be sustained”. A worryingly low bar after so many years of monetary stimulus.

Front month Brent (August) closed down $1.24 bbl on Friday at $63.02 bbl and WTI (July) lost 84 cts/bbl closing at $59.61. The weekly loss on Brent was $1.62 and on WTI 35 cts/bbl. The dated Brent physical market is under pressure from the enormous surplus of North Sea and West African cargoes trying to find homes. The Aug/Sept Brent futures contango increased by 12 cts/bbl over the course of the week closing at -75 cts/bbl on Friday, with Aug/Dec at -$2.71/bbl compared to Aug/Dec WTI at -$1.37/bbl. The Aug WTI/Brent arb narrowed by $1.19 to -$3.05/bbl.

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Posted by David Hufton