Last week ended with Brent finally breaking into $91/bbl and briefly hitting $92/bbl as the world grappled with the eventuality of Iran striking Israel, following an attack by Israel on Iran’s embassy in Damascus. And then, over the weekend, Iran launched a direct drone attack against Israel, spurring all kinds of rumours about just how expensive oil was going to be come Monday morning. The futures fell below $90/bbl early Monday, triggering a bull vs bear fight with neither party allowing the futures to shift away from $89.80-$90.20/bbl. As flat price traded sideways, traders searched the skies (and the Bloomberg terminal) for any news that answers one simple question: do we even have a geopolitical risk premium left to price anymore? The conflict in the Middle East is a terrible event on humanitarian grounds, but it has yet to have any momentous impact on oil supplies. We see both Iran and Israel shoot threats in the most “I could totally do this if I wanted to” fashion whilst doing nothing. As a consequence, we saw the bulls lose steam with the lack of bullish headlines come Apr 17 and witnessed the Jun futures plummet by $2 in two hours to $87.20/bbl at 17:40 BST. Exacerbating the weakness, the EIA announced a higher-than-expected build of over 2.7mbbls in US crude inventories. It will be interesting to see what next week has in store for these defeated Brent bulls but for now, with flat price briefly dropping to a low of $86.45/bbl, it looks like the bears are ready to fight.
In crude, we still see Gunvor bid the physical – accompanied by a Chinese player. However, heavier selling saw the phys come off to +68c/bbl. The market has, furthermore, been incredibly bearish for both Dated and futures with the weakness accentuated in May rolls. In the backend, Jun/Jul Dated initially strong buying from a major but saw a reversal into the week, selling off to +1c/bbl.
In HSFO, 3.5% barge cracks reversed sharply amid headlines about a reinstatement leading to a wave of buying in 3.5% spreads. 380 E/W was supported amid European strength and from aggressive buying in 380 spreads by Sing trade houses. In VLSFO, strength was seen in Singapore amid trade houses buying physical cargoes more aggressively. Euro 0.5% barges spreads were initially supported before seeing significant selling. The E/W hence fully reversed in the front.
In distillates, the weakness in heating oil has filtered into Europe with the prompt ICE gasoil spread in contango. Sing 10ppm gasoil has also come off on the back of ICE weakness, triggering combo buying by airlines via bank. This buying has taken the front E/W to $27/mt and has strengthened the NWE jet and especially regrade, with the prompt regrade briefly pushed up to -$1/bbl.
In gasoline, the talk of the town has been the stronger RBOB screen which has kept the complex at its mercy. In turn, EBOB was also supported with the prompt crack rallying to above $25/bbl. The arb witnessed continual selling, yet the Jun contract has seen some buybacks at sub 7c/gal levels. EIA stats left participants underwhelmed, leading to a correction in RBOB and EBOB. Since then gasnaphs have also narrowed, helping the arb dynamic.
In naphtha, cracks in both regions strengthened as the simple margin is negative so we are seeing better buying in straight-run products like naphtha. Cal selling from banks is keeping the curve limited in Europe,, but strong buying from Chinese players in Eastern futures is supporting the MOPJ curve well. The NWE and MOPJ spreads are -$11/bbl and -$8.98/bbl respectively. The E/W lacked the usual trade house selling and was supported from the short covering flows in MOPJ spreads.
In NGLs, towards the end of last week LST spreads were bid as producers sold Cal’25 LST on the back of the Iran-Israel news. However, as crude came off and a bigger than expected stock build was announced LST structure softened. Europe has lagged behind the FEI strength seen in the last few days, causing the prompt E/W to reach a 30-day high of $93.50/mt. May CP still seeing buying around the $580/mt mark, having already been bid at $590/mt previously.
