Oil futures: Crude rallies as gasoil rebounds on Indian export duty move

1 Jul 2022

Quantum Commodity Intelligence - Crude oil futures Friday were higher on the day after India announced a steep tax on diesel exports, helping to reverse the sharp distillate losses from earlier this week. 

Front-month September ICE Brent futures were trading at $111.36/barrel (1920 GMT), compared to Thursday's settle of $109.03/b.

At the same time August NYMEX WTI was trading $108.33/b, versus Thursday's settle of $105.76/b.

Crude prices rebounded after reports that India will impose a $26/b export duty on diesel,  boosting Asian and European distillate prices. 

After falling for four out of the past five sessions on rising Indian diesel imports, the ICE low sulfur gasoil futures – the benchmark gasoil contract in Europe – initially jumped over 6% in early London trade before easing back to $1,170/mt for Aug22, a gain of 4.2%.

Crude gains from earlier in the week had been wiped out in the previous two sessions, as bearish sentiment in US refined products was felt across the global energy complex.

"The market has seen some early signs of demand destruction among US motorists after data on gasoline demand showed a surprise and counter seasonal drop last week," said Ole S Hansen, Head of Commodity Strategy at Saxo Group.

"Implied gasoline demand on a four-week rolling basis fell last week to 8.93 million barrels per day, the lowest seasonal level since 2014 except for the 2020 pandemic-led collapse," added the Saxo investor commentary, noting demand from US motorists normally does not peak until early September.

However, Hansen also noted the weekly inventory report from the US Energy Information Administration showed US crude stockpiles falling to their lowest seasonal level since 2014, despite a large injection from Strategic Petroleum Reserves.

Diesel refining margins were particularly hard hit in Europe and Asia prior to Friday's announcement, with the premium for ULSD futures over Brent falling for the fifth day to a near one-month low of around $45/b. European gasoline cracks also took a hammering, falling $5/b on Thursday and are now down $12/b in just three days.

Both NYMEX RBOB and USLD came under further downwards pressure Friday, proving a drag on earlier international crude gains. 

Thursday's OPEC+ decision to proceed with a 648,000 bpd increase in August held few surprises, although talks between the US and Saudi Arabia later in July are expected to include output targets beyond August.

Crude prices were also underpinned Friday by ongoing production problems in Libya and Ecuador, while soaring mobility in China has also boosted demand. 

European and Asian natural gas prices remain firm, which could provide some price support for oil products.