Global product markets weekly: rising prices continue to undermine margins

The Dated Brent crude price strengthened further in the week commencing 1st October, with the weekly average price close to US$85.50/bbl. This is the strongest weekly average price for four years. The market remains concerned about the level of spare crude production capacity that will be available when US sanctions against Iran are fully in place. Saudi Arabia and Russia are likely to increase output to make up for lost Iranian exports but this reduces the cushion extra capacity that could be called on in case of disruptions to production elsewhere. We expect crude prices to stay strong for the rest of the year as Iranian exports decline. However, we expect OPEC spare capacity to grow in 2019 and this, combined with increased US tight oil production, should start to pull prices down later.