Much is yet to be determined about the duration of a price response, but AEGIS expects near-term tenors to rise going into Monday’s US trading. If a fleeting issue, this is an excellent opportunity for US producers to hedge with swaps. Option markets may also give more value for call options when markets shape up on Monday.
- In Asian and European trading that begins Sunday, Brent crude is likely to lead the way with higher prices
- The Brent curve is likely to increase its backwardation, the degree to which the curve slopes downward
- Tenors further down the curve will likely rise at a diminishing ratio to the increase in the front of the curve
- The number of tenors seriously affected in the front of the curve would be influenced by how long the market perceives the Saudi outage to last, and if there could be other outages or attacks to follow
- WTI will likely rise with Brent, but may lag slightly behind. A wider spread between WTI and Brent would represent:
- the desire, but inability, for the US to export more barrels abroad, and
- implication of lower imports into the US coastal markets, including the Gulf Coast