Market Report Week 9 - 25.02.2025

In recent months, heavy and high-sulphur fuel oil (HSFO) has become expensive, partly because Russia and Iran are major exporters of this grade and as sanctions and fear of sanctions have convinced Chinese and Indian refineries to avoid Russian and Iranian oil. For example, we have had many stories about sanctioned shadow-fleet tankers being unable to offload in China.
It has minimised the HSFO discount relative to Brent, especially in Asia and Singapore. HSFO oil has, on some occasions, traded with a premium to Brent, which is very unusual given that HSFO is a residual.   
We now see arguments that the HSFO discount may rise again as the US sanctions seem likely to be lifted. It should add more heavy/sour crude oil to the market, notably in Asia. As we discussed above, the effect of sanctions relies on the fear of enforcement, which is currently low. In the HSFO market, the addition of scrubbers continues to add support. However, demand may be weaker this year. The introduction of tariffs may dampen global trade growth. A possible reopening of the Red Sea may also dampen the maritime demand for bunkers. 
In the forward market (paper market), attention will gradually shift towards the summer months, when seasonal demand for HSFO typically peaks as the Middle East uses fuel oil for power production, and bitumen demand is strong. It could potentially support prices.
The market also monitors whether stricter measures against Iran will accompany a potential easing of sanctions against Russia. So far, the Trump administration has only imposed symbolic sanctions on Iran.

Oil rose last Monday after Bloomberg reported—citing anonymous OPEC delegates—that the cartel is considering delaying plans to introduce more oil into the market for the fourth time due to a "fragile oil market." The official plan remains a gradual production increase starting on April 1. In April, a modest additional 120,000 barrels of oil will be added to the market if OPEC+ does not delay the plan again.
The statements highlight that OPEC+ does not want prices to drop below the USD 70–74 range and is willing to forgo further market share to maintain higher oil prices.
These comments directly oppose Trump's call for increased production to lower prices. Therefore, it was unsurprising that Russian Deputy Prime Minister and former and influential Energy Minister Novak dismissed the report later.
However, this dismissal should not be taken too seriously. Given the recent concessions from the US to Russia, Russia is keen to avoid making statements that might antagonise Trump. Instead, the delegate remarks may indicate that Saudi Arabia has no intention of yielding to Trump's pressure. Notably, neither Saudi Arabia nor OPEC has denied the report.
Previously, we believed that OPEC+ would proceed with the production plan, given that oil prices had stabilised and that sanctions on Russia and Iran would create room for more oil from the cartel. However, with tariffs creating an uncertain growth outlook for the global economy—and now a reversal of US sanctions on Russia—we expect the cartel to postpone the plans for another three months. We should expect a formal announcement this week or in the beginning of March.
But the decision may be price-dependent. If Brent moves to the upper 70ties, the cartel may dip its toes and add more oil. 
A postponement would underline that OPEC+, spearheaded by Saudi Arabia, is eager to prevent Brent from falling below USD 72. We see good value in oil below USD 74.

Oil price volatility has dropped despite the focus on geopolitics, sanctions, and Trump's ramblings about tariffs. The market seems untouched, or some may even say overwhelmed, by all this information, and speculative accounts may have used the opportunity to lower risk exposure. 
The chart below shows the 60-day historical and realised volatility and the traded volatility in the options market.  
The low swings in the market also reflect that the market, at least on the downside, is well protected by OPEC+, which will likely postpone plans to add more oil if Brent drops below USD 72. In a way, OPEC+ also caps the upside, as the cartel will likely add more oil if Brent is trading above USD 80. 
OPEC+ may claim to have succeeded in stabilising the oil market. However, we maintain that this stabilisation is at a level too low for a country like Saudi Arabia, which, according to the IMF, has a fiscal breakeven price above USD 90. On the other hand, the UAE has a significantly lower fiscal breakeven price. 
We are not so sure that the current low volatility regime will continue. It might be silence before the storm. New sanctions on Iran and OPEC+ delaying production plans are upside risks. A downside risk is a significantly weaker risk sentiment or OPEC+ giving into Trump's request for more oil. Russia may try to step up production independently, regardless of the OPEC+ membership and quota, to support Trump.