Reports

The Big Barf in progress. Poor longs, they got overextended and the bears made minced meat out of them. We were well into the $79 range with Brent flat price, then America woke up, said ‘that’s too high’ and sent the flat price tumbling. It got thrown down the staircase, bouncing down further into the 70s. From $79.41/bbl at 14:05 BST, it fell to under $78/bbl by 14:53 BST. Optimism over China’s monetary policies combined with fears that Israel’s retaliation could unhinge a wall of fire on the Strait of Hormuz and threaten the supply of over 20 million b/d day made for a very fetching bullish story. But traders always get overextended, don’t they? And then scepticism grew over Israel’s abilities and China’s rebound. And then prices fell, eliminating a portion of the risk premium. Brent touched $78/bbl and despite some temporary support, it took another massive dump all the way down to $77.00/bbl and has been hovering above this mark. More to come? Certainly; it broke through $77/bbl just before the window and closed at $77.08/bbl. Hope the longs brought their barf bags. It’ll be tricky to keep breakfast or dinner down in such turbulent conditions.

Watch out really for the possibility of the price balloon popping. Prices went up on China and thoughts of Israel bombing
oil installations and other dangerous things. And so far both look like a limpid wet noodle. Brent flat price has been
floating high, but the market is starting to feel heavy. Prices had been buoyed by fears of Middle Eastern conflict and
hopes of China’s “fiscal bazooka”. But China’s failure to turn up was confirmed by today’s National Development and
Reform Commission (NDRC) press conference. It also looks unlikely that Israel will disrupt Iran’s oil activities – if it wants
to keep getting presents from the US and UK. If further escalation fails to materialise, there may be a day of reckoning
coming for markets. If there’s no military action, expect bears to come out of hibernation and savage the beleaguered
bulls. It may already have begun; traders noted a pivot in the market yesterday. The window was still busy, though. Exxon
regained its position as the big seller. There was a sea of ‘Exxon sells’ and ‘Totsa buys’, while numerous others came in
for the party: Vatman and Gobin started flirting again, and Trafi sold sporadically, while several others joined in too.

He finally broke through. Brent flat price eventually ploughed through the $80/bbl resistance level at 16:21 BST after
testing the waters several times. It jumped suddenly to near $80.20/bbl. Likely many stops just above $80/bbl were
triggered and some longs probably took profit, which saw a slide back towards $80/bbl. A second wind took Brent
even further up shortly after the window, and it peaked at $80.84/bbl at 17:01 BST. Lennie believed the geopolitical
risk premium had run its course and markets were ready to snap back to reality with weak macros and refinery
maintenance. His short position isn’t looking healthy this evening and we imagine certain money managers are also
in the lifeboat alongside him – as we noted this morning, many remained positioned short facing a rising tide! And
the shorts are now underwater. The longs are ‘hoping’, and that is a sad word, something bad happens that creates a
short at the expense of lives. Regardless, some operational tightness is expected as Iranian loading ships reposition.

The market rose strongly in the London morning and Brent flat price almost touched $80.00/bbl, just a shade below, not quite ready to turn tail. Clearly traders were skittish of buying at too high of a level and then holding the bag in the face of weaker macros. Technical traders were licking their lips looking at indicators that said too many hedge funds are short. And a Middle Eastern producer was also pointing to the vacant Kharg Island, as the Iranians decide the area could get hot. Some disruption is expected to Iranian loadings as the prospect of aerial or even naval attacks permeates the region. The market rose from early morning peaking at $79.94/bbl at 11:18 BST. A couple of assaults on the $80 ceiling were held off before 12:00 BST. We thought we’d left the 80s in August but, like mullets, they’re coming back. Some traders balanced the thought of an attack versus a rapid correction of at least $5 if nothing happens. A quiet window saw Totsa and Mitsui keep on buying the odd partial, while the sellside was divided between Hengli, Trafi, Repsol and Phillips. No partials were traded in the last 20 seconds. Traders are showing their caution in the current context.