Europe oil/products: Brent surges after US crude stock draw, but market remains highly volatile

London (Quantum Commodity Intelligence) - Brent hit fresh multi-year highs after the EIA reported another large crude stock draw Wednesday, and also a draw in middle distillate stocks, although gasoline inventories still continued to rise.

With the exception of naphtha, European products followed the rally and cracks were little changed from Tuesday.

But this still left refining margins for gasoline, diesel and jet down sharply since last Thursday.

In the ARA barge market, premium unleaded gasoline cracks were down $0.69/b over the last four trading days, ultra low sulfur diesel cracks were down $0.28/b, and jet fuel cracks were down $0.50/b.

Products are consistently lagging behind a Brent rally that some think will run up to $80/b this summer.

Prices were closing nearer that mark today, with August Brent trading at $79.94/b by 1630 UK time, up $1.22/b from the same time Tuesday.

Backwardation also ballooned in the crude curve, and the spread between August and November Brent extended another $0.28/b to $2.26/b.

The market is exuding the hallmarks of being very tight despite the environment of extremely low global oil demand and a huge cushion of OPEC spare capacity.

After the 1630 UK time close, Brent dropped back below $74.40/b. 

Products

Naphtha cargo prices were assessed $7.50/mt ($0.84/b) higher, narrowing the backwardation between the spot and the July paper.

The spread between north Europe and Japan naphtha narrowed again, with the July paper pegged at -$29/mt Wednesday, up from -$31/mt a day earlier, and the August paper at -$25/,t, up from -$26.75/mt. The nearby spread between naphtha cargoes and propane cargoes was steady.

There was little change in the gasoline structure, although the flat price followed crude higher. Eurobob barges traded at a discount of $3/mt below July paper, and E10 traded between $3 and $3.50/mt above the July paper.

Jet differentials were left unchanged, with cargoes at $19.50/mt above July LSG, and barges at $18.50/mt above. Prices jumped with crude, but the market structure stayed the same with a mild nearby contango.

Demand for diesel barges, a bell weather for economic activity, remains thin, brokers noted. Freight rates for barges in ARA are likely to drift lower. But the sulfur premium remains strong for blending, with 50ppm barges, a heating oil, trading at -$3.50/mt below July LSG in the summer.

Trade was brisk in the fuel oil market. Some 18,000 mt changed hands in the HSFO market, and another 22,000 mt traded in the marine sulfur (0.5%) market. The trading range was very narrow again to set the assessments.