Europe oil/products: Distillates dragged lower by surge in US refining rates
London (Quantum Commodity Intelligence) - Bullish fever in Brent was undermined by the US weekly oil stock data Thursday where traders baulked at the surge in refining activity and the builds in gasoline and distillate stocks.
Brent had hit a post-pandemic high of $71.96/b for the front-month buoyed by growing optimism on demand and the absence of any clear progress on a deal that would lift sanctions against Iran.
By 1630 it had retreated to $70.81/b, down $0.55/b on the day.
Most of the overnight gains had already been lost amid choppy but downward trading when EIA data showed US refinery utilization rates jumped 1.7 percentage points to 88.7% over the week to May 28.
Gasoline cracks in Europe had been edging lower this week before the statistics revealed a 1.5-million-barrel build in US stocks over a week that included the start of the US driving season and the market seems to have been expecting Thursday's data.
Retail gasoline prices are high in the US, partly fuelled by record-high RIN prices.
Implied gasoline demand in the US fell, with supplies down 333,000 bpd over the week.
US distillates stocks were up 3.7 million barrels and implied demand dropped 648,000 bpd.
Products
Naphtha cargo prices dipped with crude, and cracks versus crude were steady in Europe and also earlier in Japan.
Gasoline demand in the UK was almost back to pre-pandemic levels over the weekend, and in Greece, there was talk the country would not export this month amid a return of domestic demand. But summertime cracks for Eurobob swaps are softer this week than before the start of the US driving season, and a downward trend line since early May is just flattening out.
Cracks for jet cargoes in north Europe softened across the curve in the first downturn since May 27, which could have been a simple matching of the LSG futures curve, or it could reflect worries about Covid-19. The market has been recovering. Europe's weekly flight count topped 100,000 for the first time Tuesday, data from Eurocontrol shows. But the UK has banned flights to Portugal Thursday after tests revealed previously unknown variants of Covid-19.
Distillate futures softened more than Brent and softened cracks in the middle distillate complex. There were no diesel barge trades in ARA and bids and offers were a dollar per mt apart. With US refining rates surging, expectations of more diesel exports from the US Gulf refining hub loomed. But distillate stocks in Singapore dropped 8% lower last week, and the recent strength of gasoil and 50ppm barges suggests demand for blending barrels into marine fuel (0.5% sulfur), should provide support.
Fuel oil prices were little changed. High sulfur fuel oil cracks headed slightly north again. But Singapore residual fuel stocks were up 12% over the week, following on from news of bulging stocks in Fujairah.