Europe oil/products: Brent drops again, naphtha backwardation widens

16 Jul 2021

Quantum Commodity Intelligence - Brent prices were choppy Friday, but the trend was lower again in the aftermath of the US producing a hefty product stocks build this week while Saudi and the United Arab Emirates agreed on a new deal which is expected to pave the way for more OPEC+ barrels.

“It appears to have opened a can of worms, with Iraq suggesting it deserves a higher quota as well,” noted ANZ’s Hynes.

September Brent was trading at $73.75/b by 1630 UK time, down $0.79/b from the same time Thursday.

Earlier, the crude future hit an intraday low of $72.34/b. 

Devastating floods in southern Germany, causing at least 58 deaths, have closed the river to barge traffic, although the disruption to the market was minimal, with traders covering positions earlier, sources said. 

Barge traffic is expected to resume along the river next week as the waters recede.

Backwardation remains extremely wide in several European oil product markets.  

Products

Naphtha cargo prices eased only $1.50/mt ($0.17/b) even as crude fell to push crack prices higher again. August and September paper widened to $11.75/mt, up from $10.50/mt Thursday. Since Wednesday, the crack values for naphtha spot cargoes have gained around $1.25/b. Propane cargo prices were also little changed, dropping $0.50/mt. August paper was pegged $40/mt below naphtha paper. Naphtha stocks are very low in ARA.

Backwardation in the gasoline barge market eased sharply. Eurobob E5 barges traded at $10/mt versus August paper in the morning, or $722.50/mt, before falling to $4/mt above August paper with a price of $718/mt, and then trading further in the afternoon at $6/mt and $4/mt above August paper when flat prices fell around another $10/mt. E10 barges traded at $10/mt above August paper as the market opened.

Premium unleaded barges were bid and offered in a wide range of $710/mt to $720/mt around 1630 UK time and were assessed at $718/mt, down $8/mt (-$0.96/b), the biggest fall of the three grades on the day. Backwardation ramped higher after the US inventory data on Wednesday, but the structure corrected Friday to levels seen earlier in the week.

A cargo of jet fuel traded into Rotterdam at $24.75/mt above August LSGO, but there was still a higher bid into Le Havre at $26/mt above August LSGO. Prices for jet cargoes dropped $4.50/mt ($0.57/b), and the nearby differential curve gained $0.25/mt. Jet barges were offered at $25/mt above August LSGO.

Distillate futures followed crude during the day and there was again little trade in the market, with diesel barges trading at -$1.75/mt for back end loading dates while offered at -$1.75/mt for middle window loading dates. The diesel cargo trading range was very narrow into Amsterdam, bid and offered at $3.25/mt above August LSGO. Trade has been thin in the distillate market for several weeks amid very low distillate future expiry volumes, although flows have also been disrupted this week amid the devastating floods around the Rhine.

Fuel oil remains in wide backwardation. Flat prices dropped with crude, with high sulfur down $5.75/mt ($0.90/b) and marine fuel 0.5% sulfur down $5.50/mt. The spread between August and September HSFO paper was a wide $11.25/mt, and an even wider $18.75/mt between the front two months for marine fuel (0.5% sulfur) paper.