ICE Brent

ICE Brent: In the second half of March and the first half of April, ICE Brent crude oil prices increased from the mid-$80s to the $86-90 range. The main driver was geopolitical risk and the threat of supply disruptions in the Middle East. In particular, during the first two weeks of April, Iran and Israel traded drone and missile strikes. After the serious escalation between the two countries was defused by diplomatic efforts, prices eased. By the first half of May, Brent had returned to the $82-84 range seen in February and early March.

Bullish factors include ongoing OPEC+ production cuts, led by Saudi Arabia; in addition, the geopolitical risks in the Middle East remain, and could flare up at any time. However, offsetting bearish factors include lower than expected global demand in 1Q24 and April, weaker than expected economic growth, and strong growth in non-OPEC+ output, from the US, Canada, Brazil, and Guyana. The higher-for-longer interest rate outlook also dampened expectations for macroeconomic and oil demand growth.

The big picture in the physical crude markets during the first half of May was that light sweet crude was oversupplied in the Atlantic Basin, but sour crude was more balanced East of Suez, mainly due to the OPEC+ cuts. At the same time, weak refining margins in Asia weighed on crude demand in the region.

ICE Dubai (medium sour) vs. ICE Brent

ICE Dubai vs. ICE Brent was slightly weaker in April vs. March; however, medium sour Dubai was still historically strong, averaging only $0.07 below Brent (see chart). The key driver of the strength was the ongoing OPEC+ cuts.

Furthermore, sour crude markets have been focused on the impact of the completion of the upgrading project at ADNOC’s Ruwais refinery in the UAE. Domestic runs of medium sour Upper Zakum have increased, resulting in lower export volumes of the grade. This added to medium sour tightness and further supported Dubai. Upper Zakum is one of the crudes in the Platts Dubai basket; it is often the lowest price grade in the basket, and therefore often sets the price of Dubai.

In addition, sour markets were supported by potentially lower exports from Mexico (which is ramping up domestic refinery runs) and Venezuela (subject to renewed US oil sanctions).

ICE Murban (light sour) vs. ICE Dubai

ICE Murban vs. ICE Dubai trended lower (see chart). The weakness in light sour Murban was the other side of the story of the Ruwais upgrading project. Murban was the opposite of Upper Zakum: domestic runs were reduced, and export volumes of the grade were higher. The additional supply depressed Murban differentials. In addition, Murban continues to face competition from strong flows of US Midland WTI to Asia.

Asian refined product markets

Asian sour refining margins weakened in April and into the first half of May. According to the IEA, Singapore medium sour cracking margins fell from $8.17 in March to $5.39 in April (-$2.77).

Against a backdrop of tight sour crude markets, weaker gasoil cracks hurt Asian refining margins. Gasoil supplies outpaced demand, with increased flows from India east to other Asian markets; this caused distillate stocks to build in Singapore.

Asian refiners were also hit by weaker naphtha cracks, which they are more exposed to than refiners in other regions. Market reports in the first half of May suggested that some Asian refiners were considering moderate run cuts due to poor margins.