OPEC Reference Basket
The market continued the stride intoFebruary amidst cold weather in theUSA and delays at Russia’s Black Seaoutlet. The implementation of OPEC’scut strengthened market bullishness.However, the decline in fuel demand inAsia prevented prices from any furtherescalation. Nonetheless, revivedMideast geopolitics sustained marketvolatility. In the first week of themonth, the OPEC Reference Basketrallied on average $2.1/b or over 4% tosettle at $54.38/b, the highest weeklyaverage so far this year. In the secondweek, assurance from OPEC MemberCountries of steady supply amid a balanced market contributed to the renewed bearish marketsentiment amid fading cold weather in the USA. Nonetheless, an upward revision to worlddemand forecast at a time of cargo deferral from a West African nation balanced marketsentiment. The phasing-out of winter fuel demand inspired fund sell-offs in the paper marketwhich kept prices in check. The Basket closed the second week with an average of $53.45/brepresenting a drop of 93¢ or 1.7%. The revival of mild weather in the Western Hemisphereexerted further downward pressure on winter fuel demand. A supply disruption in the upstreamand downstream in the Northern Hemisphere along with resumed geopolitical developmentsextended market volatilities amid a narrowing arbitrage window for western crude to floweastward. The Basket closed the week with an average rise of $1.02 or 1.9% to settle at $54.47/b.A late cold snap in the USA revived concern over winter fuels; however, the colder weatherproved to be short-lived. Moreover, a sharp correction in China’s main equity market which wasechoed around the global appeared to indicate weaker confidence in continued strong globaleconomic growth, which could limit energy consumption. The Basket closed the final days of themonth with an average of $56.87/b, after peaking at $57.09 a day earlier.
The Basket’s monthly average rallied$3.72 or over 7% higher in Februaryafter a drop of nearly 13% in January.While a cold snap in the USA revivedmarket bullishness, geopoliticalconcerns kept volatility intact. In thefirst half of March, refinery problemsin the USA amid a draw on petroleumproduct stocks kept alertness in place.Improved refining margins in Europewere also seen lending support tomarket strength as summer fuelstockpiling began. Nonetheless,turbulence in the Asian and Europeanstock markets revived concern over potential slower global economic growth which could eatinto demand. Yet, the prospect of stronger gasoline consumption in the USA kept the marketplacesomewhat balanced. The Basket averaged $57.78/b in the first half of March, after peaking to$58.64/b earlier in the month.
US light domestic crude firmed on a dropin heating fuels amid a planned strike inNigeria which tightened light crudesupply. The sentiment was enhanced bythe announcement that Canada’s largestoffshore oil field would be shut forunplanned maintenance at a time of risingwinter fuel demand. The WTI/WTSspread averaged $3.84/b in the first weekof the month. Nevertheless, the sentimenteased in the second week amid theprospect of OPEC keeping output steadywhen it meets in March keeping thedifferential wider. Healthy stocks at theUS Gulf Coast refineries added pressureon the sour crude. The WTI/WTS spread widened to peak at $4.22/b in the second week toaverage $4.01/b. In the third week, an unexpectedly hefty draw on distillate stocks, combinedwith a draw on gasoline inventories and downstream disruptions, widened sweet/sourdifferentials. The WTI/WTS spread peaked to $4.75/b with the third-week spread average at$4.31/b, 30¢ wider from the previous week. A further draw on refined products supported lightcrude amid demand for light-end products and seasonal stockpiling. The WTI/WTS spreadnarrowed in the final days of February to average $4.05/b. WTI’s monthly average was $59.21/bfor a gain of $4.81 or nearly 9% from the previous month with the spread over WTS narrowing31¢ to $4.03/b.
North Sea market
The North Sea market began the monthwith leftover prompt barrels forFebruary loading. Hence, sellerscontinued to lower offers to dispose ofunsold barrels. The sentiment was evenweaker on Forties amid the injection oflower quality crude from the newBuzzard field into the stream. WarmEuropean weather amid healthy supplyfor March also added to the market’sweak momentum. In the second week,while most participants were involved ina London industry event, questionscontinued regarding quality issuesregarding the Forties grade, which keptthe crude under pressure as refiners sought alternatives. However, healthy demand for Marchbarrels amid improving refinery margins added support to North Sea crude in the third week.Healthy refinery demand in meeting seasonal fuel stock-builds supported market sentiment amida drop in the US petroleum products prompting firmer price differentials. In the final days of themonth, demand fulfillment for March barrels amid weak Forties quality was somewhat balancedby improving refining margins. Dated Bent closed the month at an average of $57.43/b for a gainof $3.75 or almost 7%.
Urals crude emerged in February on a stronger note amid continued weather-related delays at theBlack Sea prompting worries over tighter supply. However, prices eased on by the resumption ofloadings at the Novorossiysk outlet that had been closed due to high winds prompting lateFebruary loading. However, volatility continued on shipping delays while buyers looked foralternative grades. Competing refining margins for the sour crude kept market sentiment firm.Urals discount to Brent was 73¢ firmer at $3.47/b in the first week of the month. Tight supplyfrom the Ceyhan pipeline lent support to the bullish momentum amid continuously strengtheningrefining margins. Dated Brent to Urals spread firmed to $3.38/b into the second week. A drop inPrimorsk exports was seen potentially supporting the value of Urals, although ample Caspian’sCPC pipeline supply kept the market balanced. Hence, the Brent/Urals spread was 49¢ wider at $3.87/b in the third week. In the final days of February, refining margins remained strong. Uralsdiscount to Brent was a marginal 17¢ firmer to $3.70/b. Urals monthly average was $53.81/b,with the spread under Brent 6¢ wider at $3.62/b.
Middle Eastern market
The market for Mideast crude startedwith a bearish sentiment on refinery runcuts in Japan amid mild winter demand.Unsold March barrels amid a weakcrack spread for fuel oil pushed Omanto trade at a $50-60/b discount to MOG.The bearishness continued on emergingmaintenance season in Asia amidrefinery upgrade in Oman. Hence, theBrent/Dubai spread narrowed by asignificant $1.31 to $1.55/b. In thesecond week of the month, ampleMideast supply poised weakerretroactive OSP. April Oman and AbuDhabi light crude were discussed at a10¢/b and 15¢/b discount to MOG and ADNOC’s OSP respectively. The weakness was enhancedby the opening arbitrage opportunity for rival Russian Urals to flow eastward. The Brent/Dubaispread narrowed by a hefty 80¢ to 75¢/b, the narrowest weekly average since early January whenit was around 24¢/b. However, the improved fuel oil crack spreads lent support to the Mideastmedium/sour grades. In the third week, the Brent/Dubai spread widened to $2.73/b narrowing thearbitrage window and also adding to the market momentum for the Middle East crude. Moreover,some spot sellers of Mideast crude kept stems for their own system adding some strength todifferentials. In the final days of the month, increasing demand from India balanced the market asTaiwan’s purchase of Oman in its buy-tender was limited. Slower refinery maintenance capacitythan last year kept firmness in the marketplace. The commissioning of Oman’s 116,400 b/d Soharrefinery was also seen lending support to the grade amid lower supply, with April Oman tradingbetween parity and a 10¢/b discount to MOG.