OPEC Reference Basket :
The market began the month on a weak note amid a tumble in the financial markets which inevitably fuelled recessionary fears of slower economic recovery. Although bearish petroleum data in the US signaled slower demand, the G-20 meeting restored confidence in the marketplace later in the week. Equity market and the US dollar exchange rate fluctuations weighed on market sentiments. The Basket averaged the first week down $1.84 or 3.7% to 48.55/b. The market sentiment firmed into the second week on the back of further OPEC supply adjustments which outweighed a plunge in Wall Street stocks and firmness of the US dollar. Demand for distillates amid lower refinery run rates also lent support to the petroleum market. The Basket averaged the second week nearly 6% or $2.79 higher at $51.34/b, after peaking to a level over $52/b , the first time since November.
In the third week, a flux of weak economic indicators combined with continued bearish crude oil stocks in the US led to a revival of the downtrend movement. However, perception of economic data as an indicator for oil demand renewed hope for a recovery. The Basket averaged the week 9 or less than 0.2% higher to settle at $51.43/b. In the fourth week, uncertain bank conditions and poor economic indicators triggered a move by investors into safe-haven government bonds, which lifted the US dollar exchange rate and led to an outflow of funds from the energy market. The Basket averaged the week down by $2.40 or 4.7% to $49.03/b.
In the final week, the market moved on speculation over the economy, while the fatal swine flu epidemic raised skepticism over traveling in general and tourism in particular, impacting transportation fuels. However, the rebound in the equity markets and US dollar weakness dominated market volatility. The Basket closed the week at $49.73/b.
On a monthly basis, the market adopted hope over the economic recovery amid prosperous indicators. However, speculation over the direction limited gains in the petroleum market.
Equity market fluctuations on Wall Street, while the US dollar weakened, inevitably prompted an influx of investment into the energy futures, dominating market sentiment in April. This improvement came despite the continued deterioration in oil demand. The Basket averaged the month $4.42 or almost 10% higher at $50.20/b, the highest since October. In the first decade of May, the Basket continued to rally to a six-month high of more than $56/b on hopes of an economic recovery, the weaker US dollar and a rebound on Wall Street lifted energy futures higher.
The US domestic market emerged amid mixed sentiment, while the transatlantic spread flipped with Brent at a premium to WTI, the contango structure widened encouraging buying for storage as some refineries returned to operation. Thus, the WTI/WTS average spread widened by 20 to $1.33/b in the first week. Moreover, in the second week, more refineries returned from seasonal maintenance, while the transatlantic spread limited the flow of rival crude westward, supporting light crude differentials.
The market was also inspired by the wide contango spread. The WTI/WTS spread was 36 narrower at 97/b in the second week. Market sentiment continued to firm for the light grade amid higher refinery run rates since January. Crude oil stock build at Cushing, Oklahoma, also pressured the sweet grade. In the third week, the WTI/WTS spread was 22 narrower at 75/b. In the fourth week, a further build of crude oil at Cushing, Oklahoma, continued to pressure the sweet grade. The WTI/WTS weekly average spread narrowed 65/b or 10. In the final week, the sentiment changed with the WTI/WTS spread widening by 41 to $1.06/b. The emergence of the swine flu outbreak signaled weaker demand amid fears of traveling. A flip in the transatlantic premium also pressured light grades. In April, WTI averaged $1.82 or 3.8%
The Sea market:
Improving refining margins on the back of middle distillates kept market sentiment firm. Perception over tight supply with optimism over the G-20 outcome flared the bulls. In the first week, the Brent discount to WTI narrowed by 22 to $1.73/b. Continued healthier refining margins while the May loading programme pointed to tight supply which balanced the weaker demand outlook, sustained the bullishness in the marketplace. Brent flipped into a premium to WTI to average the second week at 1.14/b. The market was quiet most of the third week amid Easter holidays across Europe; however, the wide contango spread continued to attract floating storage, while lower demand forecast by the IEA dimmed procurement across the Atlantic. Thus, the Brent/WTI spread almost doubled by $1 to $2.14/b in the third week. In the fourth week, ample floating barrels eased differentials, while a regional major held plenty of supplies for end of April and early May. Hence, the clearing of prompt stems pressured the regional grade. The Brent premium to WTI eased in the fourth week by 93 to $1.21/b. In the final week, prompt stems were cleared at weaker levels as refining margins softened. However, maintenance work to be performed at the Buzzard oilfield in the third quarter 09 kept the regional market firm. Nonetheless, Brent flipped once again into a discount to WTI at 80/b, at large on the back of higher crude stocks at Cushing, Oklahoma. In April, Brent averaged $3.89 or 8.4% higher to $50.44/b, with the average spread over WTI at 62/b f
The market in the Mediterranean emerged at a firmer note supported by improved refining margins and tight supply. The Brent/Urals average spread narrowed in the first week by 23 to 88/b. Nonetheless, the sentiment was short lived amid deteriorating margins while buying interest slowed. Although, a halt to pumping on Iraq’s crude pipeline to Turkey prevented differentials from plunging further. The Brent premium to Urals widened by 47 to $1.35/b in the second week. Higher shipments from Azeri BTC in May pressured the regional market. Poor demand for naphtha and gasoline added to market bearishness. In the third week, the rals discount to Brent was 10 wider at $1.45/b. In the fourth week, Urals crude differentials weakened in the Mediterranean after a preliminary schedule showed loadings in May via the Black Sea port of Novorossiisk would rise compared to April. Yet, firmer demand in northwest
Europe on the perception of tighter supply supported the grade from a further decline. The Urals discount to Brent was 2 wider at $1.47/b. The return of some refineries from maintenance supported the Urals differentials in the final week with the average discount 4 firmer at $1.43/b. In April, Urals averaged $49.10 for a gain of $3.45 or 7.6%, yet the discount to Brent averaged 49 wider at $1.39/b.
Middle Eastern market:
The Middle East crude market emerged on a quiet note as traders awaited the issue of several OSPs and price differentials. However, sentiment for June heavy crudes fell, while demand from Japan was set to drop in the new fiscal year. The Brent/Dubai spread averaged the first week at 29or 72/b narrower.
Continued OPEC supply adjustment was outweighed by slowing refinery demand while arbitrage remained
in the second week, narrowing by 17. Mideast crude came under pressure in the third week with the Brent premium to Dubai 26 wider to average 38/b. However, tight regional condensate barrels lent support. In the fourth week, lower interest for Mideast crude while buyers sought more lucrative crude, pressured the price differentials, while an improved gasoil crack spread lent support to sour crude. Lower outright prices in the week lent support to market sentiment. The Brent/Dubai average spread was 33 narrower at 5/b. Lower allocation for June barrels, while the fuel oil crack spread improved, prevented prices from deteriorating further. The firming of regional Asian crude differentials while rival arbitrage barrels were inbound kept the pressure intact. The Brent/Dubai spread was $1.01 on average, widening by 96. In April Dubai averaged $4.51 or almost 10% higher at $50.10/b, while the discount to Brent narrowed by 62 s to 34/b.