A steady but strong downward trend was felt in the market for much of this week as Buffalo Bear directed pessimism which was hard to counter with any real conviction. The economic news got the hose again coming fairly consistently terrible, employment is down in the States and currency devaluation is potentially looming over China as bond yields are in free fall. Refinery margins are thin and stable, with weak crude and terrible performance in the product. OPEC reminded us that they can cut and undo cuts as they please but the demand story really seems to be what the market is focussing on. Just as Hanni-bear
Lecter was opening the Chianti, positive demand signals shone through to prices which were below $82/bbl and the market jumped on the 1.4mbbls draw in crude stocks and Jul futures are trading sideways at $84/bbl again. The market is desperately looking for real direction and the wider economic picture, refinery margins and weaker underlying physical may not be so quickly forgotten. Well, Clarice. Have the bears stopped screaming?
Crude was again awash with drama this week. An unsuccessful bull-play caused Gunvor to become the main seller of Forties and Midland, which along with selling from Reliance and Unipec, smashed down the physical to -83c/bbl, its lowest level since Jan 2023. Simultaneously, in CFDs, the Bal-May DFL crumbled to as low as -40c/bbl, but clawed its way back to +20c/bbl post window on Wednesday as the physical strengthened. Brent/Dubai also caved in with further OPEC cuts potentially looming, with the Jun contract plunging to -20c/bbl despite refinery buying.
In HSFO, physical strength in 380 set the agenda, lending strength to spreads down the curve, causing the prompt E/W rallying with Jun up to $18.25/mt. 3.5 barges initially rallied but subsequently sold off in large volume, leading spreads to be weaker down the curve despite the rally in crude. In VLSFO this week, Chinese players are in the thick of the action, providing support through aggressively lifting physical cargoes, and breaking previously stable cracks and spreads. Whilst both Euro 0.5 and Sing 0.5 were also supported, relative Asian strength caused the E/W to rally, despite seeing selling from a Singaporean trade house.
In distillates this week, some respite finally arrived for ICE gasoil, with both prompt spreads and cracks seeing major support. Sing gasoil spreads also strengthened, however, selling in prompt E/W spreads clipped the wings of its rise, with Jun falling from -$26/mt to -$29/mt. A re-emergence of downstream demand for Euro Jet due to optimism for summer led to the product’s Jun contract ascending from $55.50/mt to $59.50/mt.
Gasoline witnessed continued weakness this past week, with stop outs seen in both curves before seemingly finding a bottom on May 08, where prices at these levels enticed buying interest. In the East, weakness was concentrated at the front of the curve, with Jun/Jul cratering to 55c/bbl, its lowest value since Nov’23. The arb has seen a late resurgence on the back of a relatively weaker EBOB structure.
In naphtha, there has been a huge sell off in the spreads, in particular as the market flipped bearish. Petchem fundamentals in the East remain weak and importer buy-side hedging has calmed. The market was really long cracks and when there was not the MOC to back this up there was a strong unwinding of length. Refiners and trade houses selling cracks. The front spread fell from $10/mt on Apr 26 to $7.25/mt on May 7.
In NGLs, US propane premiums have weakened further alongside structure due to exports being maxed out, low local demand and rising production. FEI, by contrast, has seen incredible strength due to robust demand and structural issues in the Panama Canal, leading to a collapse in the Jun LST/FEI. However, the arb is now seeing new hedge buying interest. FEI/CP also climbed with sentiment in CP tepid due to the weak settle. Finally, last week’s rally in CP butane came from a major offering butane at single digit premiums while propane was well bid.
