The quest for direction in the oil markets has taken players to more niche markets with trading activity in refined fuels surging to the highest observed in multiple years. ICE low sulphur gasoil futures have seen activity swell up to 40% over levels recorded in the year previous. Amid this vigour displayed by refiners, we expect them to accelerate hedging flows which, for refiners, would typically entail buying more crude – painting a rosier picture for benchmark Brent futures. The Apr futures contract broke into $83/bbl territory this past week after what felt like aeons of trading sideways in the high $70s to $80/bbl range, only to weaken below $82/bbl on Feb 21. Prices have since then risen back to the $83/bbl-handles with the volatility perhaps emerging from traders finding it difficult to take a robust view amid this inconsistent momentum in price action. Adding to the mix are American crude oil stocks which have seen four back-to-back builds in the face of significant refinery outages and utilisation rates declining to the lowest recorded levels in two years. However, while Feb 22’s EIA announcement flagged a 3.5mbbls build in US crude inventories, this was slightly lower than expectations of a 3.7mbbls build. The crude bulls will also be jubilant upon hearing news of BP’s 435kbpd Whiting refinery returning to full production in March and TotalEnergy’s 238kbpd Port Arthur refinery working towards a complete restart in the near term. Coupling this with the still-persistent geopolitical risk stemming from tensions in the Middle East and Libya and a weaker dollar, the listlessness recorded in Brent prices might be a relic of the past. A caveat though is that market participants remember all too well the threat of bearish economic data impacting the demand story. With a US Fed still wary of cutting interest rates too soon and amid poor economic forecasts out of Germany, the bears may still lurk around waiting to pounce.
In crude, we saw a producer and trade house offering WTI Midland and Forties, finally pressuring the phys diff which recovered after a major bought a cargo from the trade house. In CFDs, a softer phys brought in selling in the prompt. The buying flow has now shifted to 11-15Mar and 18-22Mar, placing 04-08Mar under pressure. DFLs were stronger amid strength in Brent structure. Brent/Dubai saw structure sell off at the start of the week amid selling in H2 Brent/Dubai but retraced higher come Feb 22. US grades witnessed a bearish week. M1 HTT/WTT weakened over a stronger futures market whilst weakness in HSFO pressured Mars/WTI.
The HSFO eastern market saw a more choppy weak with Chinese hedge funds stopping out of 380 spread length which further on the EW. In HSFO barges, we saw a high volume of crack selling with firmer Brent spreads deterring backend crack buying. VLSFO was better supported from Apr onward with one European trade players seen buying large volumes of Apr Sing cracks. Europe also saw support with Mar cracks seeing good support. The EW was offered down the curve with profit taking seen in Q2 and Q3.
In distillates, the biggest narrative this week was weakness in Europe emerging from muted demand and a possible oversupply from barrels making their way through the Cape of Good Hope finally making it into Europe. Sing gasoil also trended downward with ICE gasoil weakness but the E/W strengthened amid weaker freight. Aviation strikes in Germany have further weakened the NWE jet diff. Regrade rolls have strengthened except for in the front, and HOGOs were hammered down despite gasoil weakness.
RINs wrote the main story in gasoline story this week with the Y0 D6 RIN dropping to below 40c. We accordingly saw a sell off in arb structure. Screen selling in RBBRs led to muted risk appetite in EBOB amid less buying in summer EBOB spreads. In the East, 92 started the week offered but has found better support and significant Q3 buying. The E/W saw buying and continues to be bullish. Gasnaph also came off with weakening RBBRs although we continue to see some Q3 buying.
The naphtha market has stabilised and the curve signals suggest potential upwards momentum. Prices have recovered from lows, following technically oversold conditions. The octane arb has opened prompting front and Q2 crack buying flows from trade houses, trading up to -$8.50/bbl and -$9.19/bbl respectively. However, propane and naphtha E/W remains offered, providing downside risks.
In NGLs, LST shifted lower this week with structure extremely weak across the curve which consequently saw the arb correct to the downside while stronger freight and better Chinese demand supported FEI structure. The EW corrected higher through the week before seeing a retracement on Thursday given the better offers in FEI phys and stronger bids in the European phys window. Butane in general mirrored LST with premiums weakening throughout the week.
