The global supply-demand balance is weakening and peak refinery maintenance has not been able to lift refinery margins to secure profit for the weakest refiners. Oil production growth in the US continues to massively outperform demand growth, oil demand in Japan continues to fall despite “Abenomics” and China posted negative oil demand growth for September. Brent prices are kept above 100 $/b on large unplanned outages, but Iraq/Sudan will soon be producing a lot more and Iran could be back in the fold by the end of 2014. On top of this the North Sea loading program for November is the largest we have seen for a long time and up 330 kbd from October. Support is however still coming from expectations of postponed tapering of QE3 by the FED (exacerbated by the weak US payrolls data posted this week), a weaker dollar and rising equity values. All told however we see more bearish than bullish factors ahead for the Brent market, both for the short- and the longer-term.

Eoin Treacy's view The positive of increasing US production has to an extent been overshadowed by unrest in the Middle East which has contributed to a loss of supply. The net effect has been a largely rangebound environment for Brent Crude since early 2011. It encountered resistance towards the upper side of this medium-term congestion area from September and continues to fall back towards the lower boundary near the psychological $100.

The spread between Brent and West Texas Intermediate returned to zero by late July but has increased to over $10 as WTI has fallen faster. The revolution in domestic US unconventional supply of both oil and gas, coupled with renewed production in the Gulf of Mexico and infrastructure bottlenecks suggest that the USA's energy advantage is likely to persist.