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Crude oil surged at the start of the month on the back of the surprise OPEC+ decision to cut production by 1.66 million bbls per day. Brent reacted to this news by climbing up towards $90/bbl, only to slip back towards $80/bbl in recent days. A look at OTC markets gives us some clues for the mid-month shift in crude sentiment. Gasoline, particularly in the East, has made a significant correction lower, with traders potentially eyeing the continued weakness in distillates and tempering bullish sentiment before the summer driving season. Crude traders now have a close eye on refining margins globally to evaluate just how much the weakness in clean products will dampen refiners’ enthusiasm to purchase crude when they come out of maintenance. With OPEC having taken such drastic action to bolster crude, bulls cannot now afford clean products to waiver over the coming months.
Gasoline and Naptha
A closer look at OTC gasoline cracks shows that the weakness in the gasoline complex likely emanated from selling in the Singapore pricing centre. 92R cracks endured a torrid start to the month with cracks gapping $3/bbl lower over the first three sessions of the month.
Despite a momentary recovery, by mid-month wholesale gasoline selling across all three major price centres ensued and we are yet to find a floor. Naphtha meanwhile has been rangebound between -$8.50 and $6.50/bbl, but well off the start of year highs.
Similar to gasoline, distillates have been weakest in the East. Singapore timespreads are now flirting with contango, while East/West has been trending lower. This weakness has translated into selling in Europe where ARA 10ppm Barge diffs were marching down from +$7.00/mt at the start of the month towards zero before OTC offers thinned out. This seems to be a floor for now as stock levels are too low for the market to get comfortable with contango in distillate markets.
Conversely to the clean complex, fuel oil has had a stellar April. This is one to watch and is offsetting the impact of clean product weakness on refinery margins somewhat, but likely not by enough to have any meaningful impact on the demand for light sweet crudes.