This monthly market commentary provides an update on ICE Murban Crude Futures, in the context of the global and Asian crude markets, as well as the Asian refined product markets.
Report completed on 11 July 2024.
ICE Brent: The ICE Brent $82-84 range seen during 1H May continued through 2H May, until the 2 June OPEC+ meeting. Light sweet crude was oversupplied in the Atlantic Basin, which weighed on prices. “Higher for longer” interest rate worries in the U.S. were also seen as bearish for economic and oil demand growth.
At its June 2 meeting, OPEC+ surprised the markets by announcing plans to gradually increase output by 2.2 Mb/d from 4Q24 through 3Q25. The move was interpreted as bearish, because the consensus. fundamental outlook was (and still is) that robU.S.t non-OPEC+ supply growth should be able to meet global demand growth in 2024 and exceed it in 2025. This means that, aside from perhaps some temporary periods of seasonal demand strength, there is little to no room for OPEC+ to increase output without bearish stockbuilds.
As a result, following the OPEC+ decision, ICE Brent dropped from $82-84 to $77. A large wave of liquidation of managed money net length to historically low levels added to the magnitude and velocity of the downward price move.
Following the plunge in prices, OPEC+, led by the Saudis, helped markets to recover by emphasizing that OPEC+ retained the option to pause or reverse the planned production increases, depending on market conditions (i.e., fundamentals and prices). This helped ICE Brent prices to rebound through 1H June.
By 2H June, ICE Brent rose into the $85-88 range, where it stayed in 1H July. The main market driver was that the overhang of light sweet crude in the Atlantic Basin that had persisted through May and 1H June cleared in 2H June.
This was caused by a pickup in European refinery crude demand after a heavy turnaround season; in addition, refining margins firmed due to stronger gasoil/diesel cracks, which encouraged higher crude runs. Reduced arrivals of Midland to Europe in June to 1.3 Mb/d -- a multi-year low -- also contributed to the cleanup of the bearish overhang. Moreover, North Sea field maintenance further trimmed supply.
Aside from firmer Atlantic Basin light sweet crude fundamentals, other factors were offsetting, which kept Brent prices rangebound.
On the bullish side, there was some anticipation of 3Q stockdraws, as well as increasing geopolitical risk (rising Israeli vs. Hezbollah tensions and Houthi shipping attacks in the Red Sea). In addition, investor inflows into the oil markets caused managed money net length to rebuild to the mid-range levels seen before the surprise OPEC+ decision. Easing inflation readings and central bank interest rate cuts in Europe and Canada also buoyed sentiment; the U.S. Fed is expected to follow with rate cuts in the autumn.
On the bearish side of the equation, there was caution about near-term demand in the U.S. and China, with key U.S. gasoline consumption continuing to contract during peak demand season. This caused some doubts about whether 3Q stockdraws would materialize.
ICE Brent, Dubai, and Murban Crude Prices and Differentials
Source: ICE
ICE Dubai vs. ICE Brent progressively weakened through much of June, with Dubai’s premium to Brent falling to a monthly average of only 12 cents (see chart). Having said that, medium sour Dubai, which traditionally trades at a discount to light sweet Brent, remained historically strong, underpinned by the continuing OPEC+ production cuts.
The weakness in June was driven by ongoing refinery maintenance and slower demand in Asia. The soft demand was reflected in mediocre, though recovering, Asian refining margins. Spot demand for Middle Eastern crudes was limited in June, with purchases for AugU.S.t loading and September delivery subdued. The narrow Brent vs. Dubai EFS also made Brent-linked Atlantic Basin grades relatively inexpensive, which further dampened demand for Dubai-linked Middle Eastern crudes.
ICE Brent & ICE Murban Timespreads: M1 vs. M3
Source: ICE
ICE Murban vs. ICE Dubai remained under pressure, declining to an average of 8 cents in June (see chart). In a continuing theme, ample availabilities of Murban depressed values for the grade. Following the completion of Abu Dhabi’s Ruwais refinery upgrading project earlier this year, domestic refinery runs of Murban have dropped and exports have increased. In addition, Murban continued to face competition from strong flows of U.S. Midland WTI to Asia.
Asian sour refining margins recovered and trended higher as June unfolded. According to the IEA, Singapore medium sour cracking margins vs. Dubai increased from $3.80 in May to $5.24 in June (+$1.44). Although gasoline cracks remained poor and weakened, overall margins were supported by stronger diesel and HSFO cracks.
Diesel cracks gained due to declining stocks in Singapore and lower exports from China and South Korea. HSFO cracks firmed due to peak summer power generation demand in the Middle East, which curtailed exports. In addition, strong bunkering demand due to longer shipping routes also supported HSFO.
ICE Murban Crude Futures (ADV)
Source: ICE
Note: ADV is average daily volumes (5 day moving average)
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