The Commodities Feed: Higher Prices & Weaker Margins

By Warren Patterson of ING Economics

Sunday, April 16, 2023 10:44 PM EST

sunset

Oil prices have continued to trend higher for a fourth consecutive week. OPEC+ cuts have clearly boosted prices. However, weaker refinery margins are a concern, signalling weaker demand, particularly for middle distillates.

Energy - Mixed signals for oil

The oil market managed a fourth consecutive week of settling higher and since mid-March, ICE Brent is up more than 18%. While the flat price and time spreads have strengthened on the back of expectations of a tighter market, demand concerns clearly remain. Weaker refinery margins remain a feature, with the weakness predominantly driven by middle distillates. Stronger crude prices will not be helping margins for refiners either.

The latest positioning data shows little change in the net speculative positioning in ICE Brent. The net long fell by just 420 lots over the last reporting week to 234,041 lots. However, there was more movement in NYMEX WTI, where speculators increased their net long by 22,079 lots to 198,493 lots. This was driven by a roughly equal combination of fresh longs and short covering. In fact, the gross speculative short in WTI is at its lowest level since October last year, standing at just 24,474 lots.

The IEA released its latest monthly oil market report on Friday, in which the group left its global demand growth forecast for 2023 unchanged at 2MMbbls/d. The IEA expects that 90% of this growth will come from non-OECD countries and is largely driven by China. Global oil inventories are also reported to have held steady over February, after growing by 58MMbbls in January. The agency believes that non-OPEC+ production will not be able to offset the cuts recently announced by some OPEC+ members. And so the agency sees an even tighter market over 2H23, pushing both crude and products prices higher.

It is a fairly quiet week for the energy calendar this week. However, we do get Chinese industrial output data for March on Tuesday, which will include domestic refining activity. For broader markets, there will be plenty of attention on the 1Q23 Chinese GDP data on Tuesday, with the market expecting a YoY number of around 3.9%.

More By This Author:

Asia Week Ahead: Policy Meetings From China And Indonesia
Key Events In EMEA For The Week Of April 17
Fed Set To Hike In May, But It Is Likely To Mark The Peak

Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. ING forms part of ING Group (being for this purpose ING Group NV and its subsidiary and affiliated companies). The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.

The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.

Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved. ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam). In the United Kingdom this information is approved and/or communicated by ING Bank N.V., London Branch. ING Bank N.V., London Branch is deemed authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. The nature and extent of consumer protections may differ from those for firms based in the UK. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.. ING Bank N.V., London branch is registered in England (Registration number BR000341) at 8-10 Moorgate, London EC2 6DA. For US Investors: Any person wishing to discuss this report or effect transactions in any security discussed herein should contact ING Financial Markets LLC, which is a member of the NYSE, FINRA and SIPC and part of ING, and which has accepted responsibility for the distribution of this report in the United States under applicable requirements.

less

How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.