Oil prices fell for a second consecutive week last week. ICE Brent settled about 2.8% lower last week, the biggest weekly decline since early May. Concern over weaker Chinese demand has weighed on the market. However, the market is trading higher in the Asian early morning with rising tension in the Middle East likely providing some support. Following a Houthi drone strike on Tel Aviv, Israel responded over the weekend with an airstrike against the Houthis in Yemen. In addition, out-of-control wildfires in Alberta, Canada, continue to pose a risk to a large amount of oil supply.
The latest positioning data shows that speculators cut their position in ICE Brent by 16,539 lots over the last reporting week to leave them with a net long of 183,890 lots as of last Tuesday. The move was predominantly driven by fresh shorts entering the market, rather than longs liquidating. The gross short increased by 14,523 lots WoW. However, NYMEX WTI saw speculators increase their net long by 10,745 lots over the week to 263,549 lots. Speculators are holding their largest net long in NYMEX WTI since October. There have been signs of tightness in WTI with the prompt spread moving into deeper backwardation over June and July. Looking at refined products, speculators cut their net long in ICE gasoil by 29,736 lots to 53,062 lots. Given the relatively bearish fundamentals for middle distillates, this selling shouldn’t be too surprising.
The 650k b/d Dangote oil refinery in Nigeria plans to hit 60% of capacity by September and 550k b/d of output by the end of the year. The ramping up of this large refinery is likely to keep pressure on refinery margins, reducing the West Africa gasoline deficit and increasing middle distillates supply. The refinery is also reportedly asking the government to ban imports of diesel and jet fuel, something the Nigerian Midstream and Downstream Regulatory Agency opposes.