Likely EU ban on Russian imports weighs on investor sentiment
Volatility continues to dominate the oil market as investors closely monitor the EU’s proposal to ban imports of Russian oil. The situation has added to the uncertainty, which continues to weigh on investor sentiment.
The structure of the oil market strengthened as concerns over tightening refined petroleum product markets pushed first-month contracts higher relative to futures.
High volatility in oil futures, sell-offs in equity markets and a clouded outlook for oil supply and demand amid ongoing geopolitical tensions and COVID-19 lockdowns in China continued reduce investors’ risk appetite and prevent some of them from entering the market
Oil prices rose on average, mainly due to signs of tightening in global petroleum product markets, particularly in the United States, and a surge in U.S. gasoline futures, which supported West Texas Intermediate futures against Brent.
Data showing a sharp drop in Russian diesel exports in April and another big drop in US gasoline stocks last week according to EIA data also added support.
Most commodity prices recovered to pre-pandemic levels and continued to climb thereafter, finally hitting new highs in March.
The global gasoline complex is heading for a strong summer and the diesel-to-gasoline premium is expected to decline sharply in the months ahead.
Global gasoline demand is expected to increase by 1.3 million barrels per day to an average of 26.3 million bpd in June-August, from 25 million bpd in January-April.
Refinery margins hit all-time highs in April as a gradual contraction in product inventories led to a much larger appreciation in fuel prices relative to that seen for crude oil, leading to a widening the difference between product and crude prices.
Rising fuel prices are the result of several commodity supply-side constraints experienced globally since the onset of the COVID-19 outbreak.
This includes refinery shutdowns, unplanned shutdowns due to inclement weather, and pipeline disruptions due to cyberattacks.
Additionally, there have been production cuts due to poor economic conditions as refiners have become more cautious in increasing their consumption to protect margins and avoid financial losses incurred in 2020, reduced exports from China and, more recently, the spring refinery maintenance season, all of which led to higher product prices that were evident in all regions.
The price reaction has been most pronounced in Europe, where pressure from geopolitical product flow adjustments High margins mean refiners will be operating as much as possible to capture gains, which could eventually depressurize oil prices. fuel and ultimately support product consumption.
Going forward, increased product offerings as the refinery maintenance season draws to a close should provide partial relief from fuel inventories and a slight decline in fuel prices.
Nonetheless, the severity of the commodity crunch at the start of the summer season and its subsequent recovery in transportation fuel consumption will likely keep fuel prices and margins well supported beyond the summer.
Tightening gasoline and diesel markets ahead of the summer driving season should continue to support the oil complex in the weeks ahead. A possible EU ban on Russian oil imports will further tighten the market for petroleum products in the Atlantic basin.
Russian crude production is estimated at 9.3 million barrels per day in the first half of May, while oil exports averaged 5 million barrels per day over the same period, down 0 .4 million barrels per day from April as buyers in Germany and Poland reduced their drawdown. .
Light and medium sweet crude differentials are expected to strengthen further as global diesel and gasoline markets are tight and demand for these products increases.
The narrowing Brent-WTI futures spread could increase volatility in US exports, although exports to Europe are expected to remain above last year’s level as countries attempt to replace oil imports Russian crude.
Global jet fuel demand is recovering at a geographically uneven pace as global aviation continues to improve with the reopening of international travel.
• Mohammed Al-Shatti is a Kuwaiti oil analyst.
Disclaimer: The opinions expressed by the authors in this section are their own and do not necessarily reflect the views of Arab News