Europe oil/products: Brent rises as OPEC+ mulls decision, but Europe products also tightening

Quantum Commodity Intelligence - Brent continued to climb Friday although any potential fireworks related to an OPEC+ decision were delayed by the UAE holding its ground on negotiations to change its baseline to match lenience given to Russian and Iraq. 

The proposal on the table is to increase production by 2 million b/d at the end of the year with a conservative production increase of 400,000 b/d in August. 

If there was no agreement, and the OPEC+ group was to roll over current quotas, prices will surge higher, given the evident tightness of the market already with wide backwardation in the nearby Brent curve. 

If OPEC decides to increase production by between 500,000 and 1 million b/d in August, prices will likely ease.

Although crude markets are tight, US oil product stocks have risen 31.1 million barrels since the end of April as refineries ramped up production.

There is a third scenario in which the OPEC+ group disintegrates, and supplies increase quite quickly and prices drop fast.

However, there are signs the European market is tightening, with prompt gasoline strength, rising distillate cracks, and a narrowing nearby contango in the Low Sulfur Gasoil futures curve.

Low Sulfur Gasoil futures gained more than Brent Friday. 

Products

Naphtha and propane markets remain tight in Europe, with wide backwardation at the front of the curve amid low domestic production, and the diversion of US supplies to Asia. The differential between propane and naphtha narrowed significantly.

Nearby backwardation widened for gasoline, with Eurobob E5 barges trading 16,000 mt at $6/mt above the August paper, and E10 barges in AR trading 8,000 mt at $9/mt, $8/mt and $7/mt above. Premium unleaded barges traded at $728/mt.

The jet market was clearly defined with EFP bids, offers and trades. Prompt loading jet barges in FARAG traded at $20.25/mt above July LSG. Jet barges were then rebid at the same level. For cargoes in the north, there was an offer into Rotterdam at $20/mt above July LSG, and a bid into Le Havre at $20.50/mt above the distillate future.

Liquidity remained thin for diesel barges in ARA with just one trade at -$1.75/mt versus July LSG. Diesel cargo differentials in the north were left at $4.25/mt above July LSG after lower bids at $3.75/mt were seen into Hamburg and higher offers at $5/mt were seen into Amsterdam. The Mediterranean looks tighter, and the contango has almost disappeared in the nearby curve. There was a bid at $0.50/mt below the forward curve into Gaeta.

High sulfur fuel oil was under pressure. Cracks for spot and the forward curve softened again Friday, extending a recent trend, amid more supplies from Russia, sources said, despite the refinery maintenance season in the country. While HSFO barges only gained $0.75/mt, marine fuel 0.5% sulfur barges gained $5/mt, and the spread between the two grades widened again. The latter's strength reflects the tightening of distillates.