June 19 was an eventful day for several reasons, including Just Stop Oil turning Stonehenge orange, Albania recording this Euros’ fourth own goal, Justin Timberlake getting arrested by a young cop who failed to recognise him and, of course, the front-month Brent futures rallying to a seven-week high to $85.90/bbl. While the futures appear to be finding resistance here, we see an injection of fresh life into the benchmark oil futures with these newfound optimists, especially with June 20’s EIA-announced draw of over 2.5mb in US crude oil inventories – opposing the API’s prediction…again. A distillates and gasoline draw of 1.726mb and 2.28mb, respectively, against expected builds, may also uplift sentiment. Despite this, macroeconomic and geopolitical uncertainty continues to encircle every movement made by the benchmark futures. Also, on June 19, Vladimir Putin and Kim Jong Un drove around in an otherwise banned Mercedes-Benz in North Korea to reportedly sign an accord agreeing to support one another if either country faced aggression. Elsewhere, while UK CPI trended to the hallowed 2% marker (although core inflation remains at 3.5%), China’s property market continues to dampen macroeconomic sentiment. Finally, we still see risk from flaring tensions between Hezbollah, with Red Sea tanker traffic down 50% y/y, and possible supply-side distortions from the ongoing Tropical Storm Alberto in the Gulf of Mexico. Although players remain uninterested in pricing any further renditions of geopolitical risk, one will have to wait and watch to see how these developments impact the play between flow and fundamentals.
In crude, it was another incredibly bullish week in the North Sea market as the physical differential saw a $1 flip w-o-w, with the entire BFOETM suite being bid, spearheaded by Trafigura. The previously overhung cargos successfully cleared, and there was also panic buying from refiners that waited too long. The July DFL surpassed 90c/bbl levels, while structure has flipped to a clear backwardation down the curve. The Brent strength also supported Brent/Dubai, with the Jul/Aug box rallying from -12c/bbl to 3c/bbl on the week.
In fuel, it was a strong performance across the board. 380 structure rallied on buying out of China and stop outs from Singapore trade houses. This drove prompt spreads into double-digits, whilst the East/West rallied above $20/mt. Similarly, Sing 0.5 was supported by good volume spread buying, while Europe was supported by physical selling of Cal25 Euro cracks.
In distillates, ICE gasoil continued its upward trend although the market was quieter amid the Singaporean and US holidays this week. We saw a volatile E/W market, with the prompt briefly falling to -$28.75/mt, although the pricing 10ppm spread is now out of contango. Jet diffs have been rangebound with strong gasoil and NWE jet. Kero spreads strengthened on strong gasoil although premiums appear to be trending lower in the prompt. Regrade has thus come off to -$1.45/bbl. HOGOs have weakened despite stronger heating oil spreads, finding pressure from ICE gasoil.
Gasoline markets have seen little liquidity or movement this week, with spreads remaining stagnant and the Jul/Aug EBOB spread trading around $3.50/mt. Headlines regarding refinery issues and anticipated record-high holiday travel in the US had minimal impact, while poor liquidity and exiting positions pushed arbs up, potentially setting the stage for offers to decrease as physical bookings out of Europe become viable.
The naphtha markets have been highly active this week, driven by Korean buy tenders for the second half of July, with premiums paid up to $6-7, supporting the spreads. Meanwhile, propane remains robustly bid, influencing the FEI propane curve and MOPJ spreads, despite a crash in Benzene prices from $360/mt to below $300/mt.
In NGLs, the big movers were related to butane as it strengthened significantly against US propane, whilst seeing the opposite trend in the Middle East. C4 ENT/C3 LST ripped up to 16.5c/gal, while C3/C4 CP rallied to $20/mt. FEI saw a resurgence with Chinese players returning to the buy side. Combine this with LST softening as it encountered selling at 80c/gal levels, the LST/FEI gapped down by $20 w-o-w to -$220/mt.
