Brent futures flat price has recently been on a 10 Downing Street-esque spiral, with its previous gains barely outlasting a lettuce. The front spread appears to be conceding to the bears upon being decimated to around 15c/bbl on May 22 from previously boasting the popular vote at 80c/bbl handles at the end of April. It’s hard to navigate what the general consensus is with hopeful sentiment often doused by bearish news, such as an EIA announced build of 1.8mbbls in US crude inventories, indicating softness in demand. This bearishness may also be labouring under a conservative regime of players removing from previously a previous overextension in length. CFTC data for the week to May 07 highlighted a second consecutive exodus of bullish money managers from the benchmark futures, with this week in particular noting a removal of 44.6mbbls of long positioning. Also weighing in on Brent’s campaign trail, US home sales showed the largest y-o-y increase in unsold inven-tories this year and US delinquency rates are rising fast, signalling a slowing economy. A show of votes now would show most people in agreement of a rollover of OPEC’s current voluntary cuts in its June 01 meeting, but this is yet to show any meaningful impact on the market. For now, it looks like (oil) leaders may come and go, but Larry the bear is here to stay.
Crude continued to be both extremely weak and extremely volatile. A major lifted Midland cargo, raising the physical diff from -71c to -64c last Friday. On May 20, aggressive offers pushed it down to -77c on Monday and -90c on Tuesday. By May 22, it slightly recovered to -88c despite ongoing offers. Bal May DFL had been sold down to as low as -140c from -80c along with the surprisingly weak physical market, but it recovered to -105c over the last two days. This week has seen a return in strength to the Dubai complex. There was good spread buying from trade houses in particular who bought up well down the curve.
In HSFO, the Asian and European markets both strengthened initially, but have seen flat or negative price action in the past few days. 380 continued to rally relative to the barges, with prompt 380 E/W trading up to $33.50/mt before finally weakening on May 23. However, in VLSFO, collapsed on the back of weak demand and a weakened physical window, with the prompt Sing 0.5 crack falling to $8.60/bbl and spreads collapsing down the curve, with Jun/Jul trading down to $4.50/mt.
In distillates, ICE gasoil had a fairly strong end to last week, but failed to retain its strength this week, with spreads displaying either rangebound or marginally negative price action. This was partially due to the EIA’s bearish stats announcement which saw an unexpected distillates build of 379kbbls, which also caused HOGO cracks to sell down in the US. Euro Jet had a strong week, with the prompt trading up to $64.25/mt by the midweek and further interest down the curve, potentially owing to news of lower than expected Asian supply coupled with expectations of strong summer air travel numbers, particularly due to the Paris Olympics.
The gasoline market was an extremely mixed bag this week, amplified by thin Eastern liquidity deriving from Singapore’s public holiday on Wednesday. Structure had rallied into the end of last week with major refineries partially offline, however markets weakened once they came back online. Inventory data on May 21 showed a 2mbbls build in gasoline stocks, exerting further bearish pressure on the market, with Q3 gasnaph crumbling from $200/mt to below $180/mt, although bullish demand and refinery utilization stats on May 22 helped to put an end to the fall.
The naphtha market was perplexed this week with a weak physical market at odds with a well-supported paper market, a phenomenon that could be explained by petchem and propane flows, in addition to a potential European bull play. MOPJ has seen synthetic strength, again due to petchem and propane swap flows, whilst strength in global propane saw FEI/MOPJ rally and trigger selling flows down the curve at these elevated levels. Additionally, liquidity in the market has been dire due to a multitude of public holidays around the world and the beginning of school holidays in Singapore, with a slowdown in the cracks’ bullish momentum something to watch out for.
In NGLs this week, May 22’s EIA stats posted a less than expected build in US propane which, along with higher water levels in the Gatun Lake, supported LST and the arb. FEI still sees DCE buying while the E/W finds some pressure from pronaps being very well bid. A vital NOC was seen buying CP cargoes last week which supported the C3 CP. This support was intensified this week amid high Panama Canal auction fees. Finally, US butane has been well bid with the strength concentrated in June due to funds rolling their positions.
