OPEC Reference Basket
The petroleum market began March with a mixed reaction over the financial market’s downturn and concern over summer fuel supply amid the possibility of rising demand due to lower prices. Thus, the weekly average price of the OPEC Reference Basket rose 35¢ or 0.6% building on a surge of nearly 6% the week before to close at $57.85/b. In the second week, the fading weather element in prices on higher temperatures helped calm market sentiment in the second week. Nonetheless, evolving concern over world economy growth amid a drop in major equity markets set alertness in place. Hence, the Basket dropped 73¢ or 1.3% in the second week to average $57.12/b. In the third week, market bullishness was revived on ongoing supply concerns about gasoline-rich West African crude. The sentiment was furthered by depleting gasoline inventories in the world top consumer amid refinery glitches. In the third week, the Basket averaged $57.31/b, up a marginal 19¢. In the final week, bullish sentiments strengthened on Mideast geopolitical developments and the continued decline in summer fuel stocks in the USA amid a strike in France which delayed petroleum shipments and refinery throughputs. The Basket closed the final week in March 7.5% or $4.27 higher to settle at $61.58/b after peaking at $63.46/b, the highest level since early September.
On a monthly basis, the OPEC Reference Basket was volatile on tumbling equity markets while OPEC kept output unchanged. Revived developments in Mideast and West African geopolitics helped the bulls tosustain strength and furthered the fear premium in the marketplace. These sentiments were enhanced by depleting summer fuel stocks in the USA. As a result, the OPEC Reference Basket closed the month at a six-month high of $58.47/b, representing a gain of $4.02 or 7.4%. In the first half of April, the Basket moved higher reaching $64.71/b on April 13, on Mideast geopolitical developments.
Sweet crude in the US domestic market emerged on a firm note amid demand for light-end products and a stronger gasoline outlook. Procurement by Gulf Coast refiners amid lower supplies of competing foreign grades kept sweet crude firm. In the first week, the average WTI/WTS spread widened 17¢ to a seven-week high of $4.20/b. Nevertheless, sentient changed amid depleting gasoline stocks and tighter supply of sour crude. Thus, demand for light-end crude strengthened amid seasonal stockpiling. The widened contango spread also supported buying interest with domestic production falling. Hence, the WTI/WTS second weekly average spread narrowed by a hefty $1 to $3.19/b, when it was at the lowest level in nearly two years at $2.35/b. In the third week, the return of some refineries from seasonal turnarounds amid shrinking product inventories helped sweet crude to rebound from the previous week’s narrow spread. Hence, the WTI/WTS weekly average spread remained unchanged.
Continued concern over summer fuel supply amid seasonal stockpiling maintained the firm sweet crude premium. The WTI/WTS spread narrowed in the final week to $3.59/b. Nonetheless, overall concern over tight sweet crude supply amid the higher Brent spread to WTI kept the monthly average WTI/WTS spread 44¢ narrower at $3.59/b.
North Sea market
A recovery in refining margins lent support to weakened Forties that remained under pressure due to poorer quality. The market firmed following Norway's Norsk Hydro shutting down its Oseberg field in the North Sea after a platform fire in the first week of the month. Continued strong refining margins amid tighter supply of light sweet crude supported North Sea crudes in the second week. Nevertheless, the sentiment eased later that week on weaker refining margins amid unsold month-end stems, yet the strength in gasoline limited price differential weakness. In the third week, continued firmness in Forties pressured refinery margins and kept buyers on the sidelines. The soft market continued into the final week on an overhang of prompt April stems. However, in the final days sentiment was supported by the clearing on attractive offers. Dated Brent averaged the month at $62.15/b, which was $4.72 or over 8% higher.
Urals crude in the Mediterranean market emerged on a weaker note on ample supply and higher March production. However, higher refining margins compared to light sweet crude caused the discount to narrow. Brent/Urals spread averaged 36¢ narrower at $3.34/b in the first week. Nevertheless, ample supply prompted buyers to move to the sidelines pressuring the Russian grade despite healthy refining margins. In the second week, the average Urals discount to Brent was 30¢ wider at $3.64/b amid the weakening North Sea grade. The outflow of some barrels amid clearing stems supported Urals differentials to firm. The prospect of lower April supply and healthy refining margins added to regional market bullishness. The Brent/Urals spread narrowed 54¢ to $3.10/b in the third week. In the final week, depressed refining margins amid the April schedule showing Russia’s Primorsk exports set higher. A strike in France halting shipping traffic in the Mediterranean terminal added to the bearishness on lower intake. In the final week, Urals discount to Brent was a slight 6¢ narrower at $3.04/b. On a monthly basis, Urals averaged$ 58.81/b with the spread under Brent 27¢ narrower at $3.34/b, the lowest level in five months.
Middle Eastern market
The Mideast crude market emerged on a bullish note amid the restart of Oman’s 160,000 b/d Sohar refinery limiting crude export. The strong price for rival Sokol crude added to the market’s bullish momentum. Lower retroactive OSP supported Oman to trade at a premium for May loading for the first time in seven months, with differential set at 3-5¢/b above MOG in the first week. A lower allocation to Asia from a Mideast major and healthy demand on improved refining margins supported Mideast crude. May Oman was assessed at a firmer level with a 20¢/b premium to MOG while Abu Dhabi Murban traded at a 35¢/b premium to OSP amid a cold snap in Japan in the second week. The sentiment continued into the third week on the arrival of a late winter which boosted the use of heating fuels. Oman traded at a 20-22¢/b premium to MOG amid Taiwan’s CPC buying spree of Mideast sour crude for the first time in six months, while Abu Dhabi Murban was discussed at a 35-43¢/b premium to ADNOC’s OSP. However, in the final week, steady supply from a Mideast major amid covered requirements ahead of the release of the new retroactive OSP pressured premiums for the sour grade. May Oman was heard sold at a premium of 12¢/b to MOG, yet Abu Dhabi Murban traded at a 33¢-45¢/b premium. The widened Brent/Dubai spread lent support to the Mideast crude. Brent/Dubai’s monthly average spread was $3.35/b, the widest in the year compared to $1.8/b in the previous month.