Crude oil prices made modest gains Mar. 8 ahead of the Greek government persuading most of its private creditors to accept the biggest national debt write down in history, opening the door for payment of a second massive bailout of that economy.
Greek officials said Mar. 9 that 83.5% of private investors holding Greece’s government bonds agreed to a bond swap. The market was mildly disappointed, however, by the lower-than-expected sign-up rate by the deadline. “The deal also left many people unconvinced regarding its sustainability, as Greece reported a higher-than-expected 7.5% shrink in fourth-quarter gross domestic product,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “If the Greek economy can’t return to growth, it will just be a matter of time before its debt situation will come back to haunt the market again. Meanwhile, the European Central Bank kept its policy unchanged at its regular meeting yesterday.”
Oil products outperformed crude at the front-month contracts, driven by the Energy Information Administration’s inventory report for last week. “This performance of oil products also gave some hope for crude to hold onto the recent gains, as we firmly believe that a sustained high crude price has to be supported by oil products due to the transmission mechanism of refining economics,” said Zhang. “The front-end of gasoline and distillate curves rebound slightly but remained soft. As a further sign of demand weakness, the first 2-month time spreads in Asian fuel oil turned into contango for the first time in over a year. Meanwhile, the Urals differential slumped further due to poor refining economics in Europe, while Forties differentials weakened slightly amid speculation that physical arbitrage to Asia is halting for now.”
He said, “The softer fuel oil market is a reflection of a sharp rise in fuel oil stocks in both Singapore and the Amsterdam-Rotterdam-Antwerp region. The latest product inventory reports released yesterday show that fuel oil stocks at both trading hubs stood close to their multiyear high. Light distillate stocks in Singapore have also gotten comfortable, setting seasonal record-high levels, on the back of arbitrage flow to the region driven by the very strong naphtha market in the region. Across the barrel, at both trading hubs, the Asia distillate market still holds the strongest fundamentals.”
Olivier Jakob at Petromatrix in Zug, Switzerland, said, “US crude oil cannot be exported, but the US is simply exporting the molecules as products rather than as crude oil. Likewise the US cannot export its surplus of natural gas but instead natural gas is displacing coal, which is then exported. For certain commodities the US is a landlocked country, but if one looks at the US on a global MMbtu basis, then we can see that the cheap US energy is finding its way by displacement to the world markets. As the US will continue to export more of its cheap crude oil in form of products it will continue to be a tough environment for European refiners that are linked to the Brent premium.”
He reported, “European refinery margins are starting to be low enough to anticipate more refineries turning the kits lower, which would then put a floor on the cracks but start to pressure the European crude oil differentials. The Russian crude oil differentials are starting to be under pressure, while Forties remains for now well supported as on any signs of weakness it is pushed to the caverns of South Korea. The US refining margins on US inland crude are, however, still extremely good. The Brent-West Texas Intermediate spread might not be as wide as last year, but the Canadian Heavy-Light Louisiana Sweet (LLS) spread is at a record discount of $53/bbl while Bakken-LLS is at $40/bbl [discount].”
Crude oil stocks are building in Canada and in Cushing, Okla., so US Gulf Coast refiners need to be bringing “as many unit trains as possible from North Dakota to the gulf,” Jakob said. “Help from a pipeline might come earlier than expected since Seaway Crude Pipeline Co. announced late yesterday that it had flushed the pipeline much earlier than expected. We don’t know the exact date for the start of Seaway but with the flushing completed the operator is increasingly confident that it will start before the end of May.”
Seaway Crude Pipeline System (SCPS), an existing crude transportation network between Cushing and Freeport, Tex., is in the process of being reversed to carry crude from Cushing to the Texas coast. “While the focus is on the Seaway pipeline, there are also new train unit loading racks that have been built in North Dakota, and we think that it is safe by midyear to add 100,000 b/d of unit trains to the 150,000 b/d of Seaway for crude oil moving from the Midwest to the US Gulf Coast compared with a year ago. What is still in short supply is offloading train racks in the US Gulf Coast, but the $40/bbl spread between Bakken and LLS will surely pay for some splitting of the unit trains,” said Jakob.
In other news, the US Department of Labor reported Mar. 9 employers added 227,000 more jobs in February with the official unemployment rate remaining at 8.3%—the lowest in 3 years. The government revised figures for December and January, adding 61,000 jobs.
The April contract for benchmark US light, sweet crudes gained 42¢ to $106.58/bbl Mar. 8 on the New York Mercantile Exchange. The May contract increased 41¢ to $107.06/bbl. On the US spot market, WTI at Cushing was up 42¢ to $106.58/bbl.
Heating oil for April delivery advanced 5.01¢ to $3.27/gal on NYMEX. Reformulated stock for oxygenate blending for the same month rose 2.66¢ to $3.31/gal.
The April natural gas contract dropped 3¢ to $2.72/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 4.8¢ to $2.19/MMbtu.
In London, the April IPE contract for North Sea Brent climbed $1.32 to $125.44/bbl. Gas oil for March escalated $26.75 to $1,032.75/tonne.
The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes advanced $2.37 to $124.13/bbl.
Contact Sam Fletcher at email@example.com.