Europe oil/products: Brent edges higher and backwardation widens

11 Jun 2021

London (Quantum Commodity Intelligence) - Brent continued to rise and briefly surpassed $73/b during the day amid momentum from OPEC+ cuts and recovering global demand, and if Goldman Sachs is correct, the rally will continue through to the summer to push crude up to $80/b.

But by 1630 UK time, August Brent was back to $72.63/b, up just $0.15/b from the same time Thursday, September Brent was up just $0.05/b, October Brent was flat, and November Brent was down $0.04/b.

Backwardation widened in the Brent curve but showed signs of strain at these high flat price levels.

The Goldman bull run requires a strong recovery in global jet demand among other factors such as a lack of fresh Iranian barrels and the Middle East ramps up demand for air conditioning over the summer.

But jet cracks in north Europe were little changed in the nearby curve Friday and low-sulfur gasoil futures failed to follow crude higher, leading to a weakening of cracks in the distillate complex in general.


The spread between physical and paper naphtha increased Friday and the front-month crack fell to a near 1-month low of -$2.97/b. Spot CIF NWE cargoes were heard bid higher while the entire swaps curve saw flat price losses, with more pronounced falls for further-out months due to the drop in underlying crude values. Paper cracks were down between $0.09/b and $0.16/b.

Gasoline was the only major product on the day to see cracks increase, with prices still reacting to a stock draw in the ARA hub over the last week, although the premium for RBOB over EBOB fell on the day. Eurobob E5 barges were heard traded at between $675/mt and $677.5/mt through the day, while E10 deals were heard done at between $680/mt and $681.5/mt, increasing the spread between the two grades. Premium unleaded also gained premium over E5 in line with barge trades at $679/mt.

The differential for spot jet barges versus cargoes moved $2/mt higher Friday, with barges heard bid at $21/mt over July LSGO futures for the prompt dates and cargoes heard traded at $20/mt over July LSGO. The Aug/Sep spread doubled to $0.5/mt after flipping into backwardation from contango the prior day. Cracks were weaker along most of the curve as distillate flat prices ignored small gains on crude.

Physical distillates prices in Europe were flat to slightly up Friday, with ULSD barges heard traded at -$2/mt versus July LSGO and cargoes bid up to $1.75/mt over July without attracting interest. Flat prices for nearby months held firm and the June/July contango weakened slightly, while backwardation steepened from September onwards.

Spot high-sulfur fuel oil prices fell, while low sulfur marine made small gains. Refining margins pivoted around October, which remained flat, while those up to September fell and November onwards increased, in line with a similar pivot on the Brent crude curve.