The Daily Update - Oil, Oman

Oil remains well bid with Brent reaching out for that $70 a barrel level boosted by OPEC production cuts, stronger than expected economic growth rates and of course a weaker US dollar. There is also the structure of the market which is in ‘backwardation’; this is when the near dated contracts are priced more expensive than the far dated contracts. This alone encourages hedge funds and other speculators to play the market from the long side. Broadly, by buying the near dated contract and rolling monthly into a contract further out along the curve you are almost guaranteed a profit even if the market stays still, that is of course until the shape of the forward curve normalises.

So, currently the market is pricing the Brent March contract at $69.33 and the December contract at $65.72 with the curve inverted every month in between, this is the biggest premium from spot to a year out since 2014 and is an important factor in why the market keeps moving higher.

There are other wider implications to the strong showing by oil which was up 49% from the mid-year lows to end of 2017. Equity indices have arguably been led higher by oil and gas companies with shares in Royal Dutch Shell Plc. hitting a record high just this week. Our bond issues from issuers in the Middle East are also performing very well even with the somewhat volatile UST market this week; due to the record supply schedule from the Treasury.

Yesterday Oman took advantage of the regional strength by issuing $6.5bn in bonds, over three tranches; maturing in 5, 10, and 30 years. We did not take part in the issues as we already have our allocation in Oman and the new bonds just did not offer enough over the existing issues to encourage a switch or rotation. This morning the 10-years are up about ½ point and the 30-years about 1½ points which has encouraged our existing bonds to move higher alongside, although by a lesser amount; but enough to justify not paying the dealing costs associated with a move into the new issues.

Please read this important information before proceeding. It contains legal and regulatory notices relevant to the information on this site.

This website provides information about Stratton Street Capital LLP ("Stratton Street"). Stratton Street is authorised and regulated by the UK's Financial Conduct Authority. The content of this website has been prepared by Stratton Street from its records and is believed to be accurate but we do not accept any liability or responsibility in respect of the information of any views expressed herein. The information, material and content provided in the pages of this website may be changed at any time by us. Information on this website may be out of date and may not be updated or removed.

The website is provided for the main purpose of providing generic information on Stratton Street and on our investment philosophy for the use of financial professionals in the United Kingdom that qualify as Professional Clients or Eligible Counterparties under the rules of the United Kingdom Financial Conduct Authority (the "FCA"). The information in this website is not intended for the use of and should not be relied on by any person who would qualify as a Retail Client. Products and services referred to on this website are offered only at times when, and in jurisdictions where, they may be lawfully offered. The information on this website is not directed to any person in the United States. The provision of the information on this website does not constitute an offer to purchase securities to any person in the United States (other than a professional fiduciary acting for the account of a non-U.S person) or to any U.S. person as such term is defined under the Securities Act of 1933, as amended.

The website is not intended to offer investors the opportunity to invest in any Alternative Investment Fund ("AIF") product. The AIFs managed by Stratton Street are not being marketed in the European Economic Area ("EEA") and any eligible potential investor from the EEA who wishes to obtain information on the AIFs will only be provided with materials upon receipt by Stratton Street of an appropriate reverse solicitation request in accordance with the requirements of the EU Alternative Investment Fund Managers Directive ("AIFMD") and national law in their home jurisdiction. By proceeding you confirm that you are not accessing this website in the context of a potential investment by an EEA investor in the AIFs managed by Stratton Street and that you have read, understood and agree to these terms.

No information contained in this website should be deemed to constitute the provision of financial, investment or other professional advice in any way. The website should not be relied upon as including sufficient information to support any investment decision. If you are in doubt as to the appropriate course of action we recommend that you consult your own independent financial adviser, stockbroker, solicitor, accountant or other professional adviser. Past performance is not necessarily a guide to the future. The value of investments and the income from them may go down as well as up. An application for any investment or service referred to on this site may only be made on the basis of the offer document, key features, prospectus or other applicable terms relating to the specific investment or service.

Where we provide hypertext links to other locations on the Internet, we do so for information purposes only. We are not responsible for the content of any other websites or pages linked to or linking to this website. We have not verified the content of any such websites. Such websites may contain products and services that are not authorised in your jurisdiction. Following links to any other websites or pages shall be at your own risk and we shall not be responsible or liable for any damages or in other way in connection with linking.

By using this site, you should be aware that we may disclose any information that we hold about you to any regulatory authority to which we are subject, or to any person legally empowered to require such information.

This website uses cookies to improve user experience, by clicking the "I Accept" button below means you consent to the use of cookies on our website.