Markets have been echoing the early fellowship for much of this week as they struggled to establish a clear and comprehensive narrative. However, what is certain is that Gollum’s precious metals have been the one market to rule them all, with copper reaching new record highs, platinum and silver breaking out, and gold continuing to be hoarded, but by disturbed governments, not by mountain-dwelling dragons. Amidst an unsettling week for the US dollar and the wider global economy, stagflationary fears are beginning to spread across Middle Earth, although Joe Biden is seemingly more concerned with doing everything in his power to ensure that Chinese EVs shall not pass (into the US) after introducing a new 102.5% tariff on their import. North Sea crude has been decimated, spurred on by various majors seeking to cast their cargoes into the fires of Mount Doom, lowering physical prices to their lowest levels since ancient (Covid) times. Meanwhile, Brent has been in need of a second breakfast, as it continues to settle in $82/bbl and $83/bbl handles, with any breakouts being quickly vanquished. With uncertainty lingering, can the markets fend off Sauron’s bearish spells or will they find their new king? We are not Saruman, we have no crystal ball, but beware, not all those who wander are lost…
Crude markets this week demonstrated both bearishness and major volatility. North Sea physical, CFDs and Dubai markets saw volatility, with the North Sea physical differential dropping to -98c/bbl on Tuesday, levels not seen since Covid, before slightly recovering to -71c/bbl. Volatility in CFDs was even more pronounced, as players avoided trading the front structure due to overwhelming weakness induced by pressure from the weak physical. US grades also experienced bearishness catalysed by supply uncertainty and macroeconomic concerns.
The HSFO market was driven by European weakness amid an underperforming physical. The 380 E/W rallied aggressively on the back of this strength along with continued 380 spread buying. In VLSFO, things were more rangebound with front Sing spreads seeing buyside interest whilst backend spreads softened with Brent spreads. Euro 0.5 spreads saw mixed interest whereas the 0.5 E/W was initially supported but later saw selling in the Q3 tenor.
In distillates, we continue to see a low volumes regime contributing to occasional spikes and then periods of lulls. The market remains pressured by poor US demand and bearish economic data. However, Jun/Jul ICE gasoil was stronger than the backend. Sing gasoil has been strong despite weaker ICE. The E/W saw interest especially with freight ticking up. NWE jet saw a rally at the start of the week although noting more selling now. Regrade remains rangebound in the prompt although we see combo interest in Q3 and Q4. Finally, with the weakness in the US. Heating oil remains offered.
In gasoline, things returned to where they left from last week. EBOB saw selling with a weaker RBOB and a trade house aggressively selling spreads. Although mid-week, we saw a floor amid trade house and refiner buying in EBOB structure. In the same vein, the prompt TA arb rose at the start of the week but came off to a new low of 6c/gal into the week. The East continued to see pain this week due to which the Jun/Jul E/W box came off to -$1.10/bbl. Gasnaphs have been rangebound albeit softening on May 16 on higher naphtha.
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 this week, the Panama Canal’s effect has been the main story, with auction fees driven up to $2 million, causing FEI to be very well-bid, rising from $583.50/mt on May 09 to $597.15/mt on May 16, with arbs offered as a result, which in turn added around $40/mt to freight costs. US propane exports also exceeded 1.9mbbls/d, which are likely to have maxed out due to US dock capacity and shipping availability.
