Lipstick on a pig

Published at 11:35 11 Feb 2019 by

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Despite renewed worries about Chinese demand and the fate of the OPEC+ deal, physical crudes are holding up well, with West African differentials and global heavy and medium crudes strong. It would be hard to argue that the global physical crude market is sending any bearish signals and while ‘not bearish’ doesn’t necessarily equate to bullish, the strength in these grades comes at a time when we are trading peak turnaround barrels. So, while flat price can be rangebound for a bit longer after turnarounds, one has to believe the market has a real chance to fly.

The growing loss of Venezuelan crude has sped up the tightening of medium and heavy grades, with even non-US buyers struggling with shipping insurance and banking lines. This has meant our view that Dated-Dubai will invert in Q2 19 has materialised a few months early (and is likely to persist until the Venezuelan situation is sorted). Although Maduro’s position is increasingly precarious, there is the possibility of a protracted crisis with no immediate resolution.

Even Atlantic basin lights have perked up, not just because of the distillate bid for WAF barrels, but also as USGC refiners seek fuel oil in Europe as coker feedstock, boosting simple refining margins and in turn supporting light crude demand. Brent spreads have support in the near term.

In contrast, recent WTI developments have been bearish, amid a plethora of refinery outages and a leak on the Patoka leg of the Keystone pipeline that means Keystone can currently only bring barrels to Cushing. But we still struggle to see tank tops for Cushing as a given this summer, unless the worst-case scenarios play out. That said, if US crude stocks build enough of a buffer to keep WTI structure rangebound, WTI-Brent may remain pressured, especially if Brent performs.

Brent-Dubai spread, $ per barrel Venezuelan exports, load month, mb/d
Brent-Dubai spread Venezuelan exports, load month
Source: Argus Media Group, Energy Aspects Source: Kpler, Energy Aspects

 

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