Spreads carrying the oil complex

Crude prices corrected in the early morning, likely due to spillover effects of an Asian equity selloff, amid concerns over the Chinese housing market. Indeed, the dollar index, tracking a basket of currencies against the dollar, rose markedly on late Friday and remains elevated compared to previous months. For the crude markets, two factors are indicating that prices will remain supported, time spreads continued to climb, at 78 cents at the prompt, boosted by better sentiment, as long exposure from managed money increased by 20k. Furthermore, end-of-year gasoil cracks continue to be bid, with ICE gasoil cracks now at 9.3 $/b for the November delivery, which will increase east-west flows towards Europe. Better demand in Asia, boosted by Chinese demand from independent refiners, is boosting physical crude markets with Russian ESPO and Sokol grades at yearly highs against the Dubai benchmark. 

The Fed meeting on Wednesday will likely bring volatility across risky asset classes, as the much talked about Fed tapering will likely be discussed. Sharp downward moves in the treasury yields and equity markets could have an adverse impact on crude markets.