FxWirePro: Supply Glut and Iranian Sanctions Among Major Crude Fundamentals – Glance at ICE Brent Oil Options and Time Spreads

Crude oil prices tumbled since the beginning of October, noting last Tuesday’s slumps as one of the largest daily downward moves of the year at -$2.58/bbl. Last month, international oil benchmark Brent dropped by around $10/bbl as physical markets remained oversupplied from elevated production from OPEC whilst Iranian supply was still in the market despite reduction in reported exports.

To understand the recent move in oil price and Iranian sanctions, in this report we take a look at what’s new in terms of announcements by US State department on sanctions, Iran’s supply and export trends relative to 2012 oil-based sanctions, weakness in physical markets and differentials and latest macro sell-off and financial positioning by investors.

Given part of the recent sell-off in oil was due to excessive crude in the physical markets, we believe it is the same physical market which will start to tighten once Iranian oil finds it difficult to reach customers. The presence of Iranian barrels in the physical markets will be superfluous. The lack or difficulty in acquiring shipping insurance will help in reducing exports quickly as they did during last international sanctions.

Trade recommendations: We also remain long Jun’19 ICE Brent 80 Call vs 2x short 66 put and long ICE Brent Jan’19 vs Dec’19 spread. Stay long Dec’19-Jan’20 Brent spread for long-term investors. Courtesy: JPM

Currency Strength Index: FxWirePro's hourly EUR spot index is flashing at -46 levels (which is bearish), hourly JPY spot index was at 154 (bullish) while articulating at (09:55 GMT). 

For more details on the index, please refer below weblink:http://www.fxwirepro.com/currencyindex