Although Lebron James recently hit the milestone of 40,000 points in the NBA, North Sea crude bulls are still stanning Michael Jordan in the GOAT debate. For the Dated Brent Bulls have had an impressive start to the year and are looking to carry the momentum into the spring playoffs despite refinery maintenance headwinds. Physical differentials remain healthy, structure is rolling up stronger in orderly fashion, and the recent Brent futures expiry sent bullish signals to the market with two trade houses being sole buy-side aggressors. Let Long (Dragon) Cook.
The bullish momentum showcased has been quite impressive. January and February saw different storylines play out. Initially, the prompt strengthened on the Libya force majeure headline and Forties pipeline outages. Then, this physical strength filtered into February and March on the back of impressive refinery margins with gasoline and diesel leading the way. What’s more, a rising Totsa (tide) in the physical window lifted all bulls (boats). The market looked to position short early in anticipation of turnarounds, but strength in margins and a strong physical caught out the short-positioned market as barrels cleared at breakneck pace.
To the surprise of no one, OPEC+ will be extending their crude production into Q2, guaranteeing a continued depletion of crude inventories to tighten the market. Last September, any extension of voluntary cuts was a major headline and contributed to aggressive North Sea strength. But now, it is business as usual for market participants, and with the Red Sea situation very much priced in, traders are looking for the next big headline to satisfy their dopamine fix. The question is how Saudi Arabia will bring the missing barrels into the market without sending barrels south. Their idled capacity of 3mbpd has come at a cost, however that can has been kicked down the road.
Going into the month of March, we think there is good reason for the complex to remain bullish. The first day of March saw renewed strength as a trade house aggressed the buyside, bidding WTI Midland. Despite the softening in gasoil, strength persists in EBOB, supporting light sweet crude margins. Good hedge buying has been seen out of April rolls, and deferred structure may roll up stronger. Nonetheless, downside risk persists with the market oversaturated long, putting balmo at risk of sharp flushes lower, as seen this week. This, then provides an opportunity to position long to express an bullish view, but be wary of high volatility to the downside.
Back to the sports analogy. The North Sea market remains a niche future, not the Major or Premier League. It is merely the G-League, or the Championship equivalent in English football. Brentford Futures remains rangebound. Will the A team follow suit?
