ICE Brent settled a little more than 1% higher yesterday, with the market moving closer to the $65/bbl level. Market participants appear more concerned about supply risks than the odds of a surplus going forward.
These concerns are clearly reflected in the middle distillate market, where the ICE gasoil crack continued to rally. It’s now above US$38/bbl, up from around $23/bbl in mid-October. Meanwhile, the prompt ICE gasoil timspread surged to a backwardation of more than $43/t. Worries over Russian diesel supply amid sanctions and Ukrainian attacks on Russian refineries are driving the market’s strength.
The strength in the middle distillate market should prompt refiners to maximise yields on middle-of-the-barrel products. Meanwhile, broader strength in refinery margins should support refinery runs. The strength in refinery margins certainly makes a more bearish view of the crude oil market less likely.
ICE Futures Europe said that the delivery of diesel under the ICE gasoil contract, which is produced from Russian oil in third countries, will be banned from January. This move by the exchange aligns with the EU ban on refined products derived from Russian oil, which also comes into effect in January.
Numbers overnight from the American Petroleum Institute show that US crude oil inventories increased by 4.4m barrels over the last week. Refined products also saw stock builds, with gasoline and distillate stocks increasing by 1.5m barrels and 600k barrels, respectively. Overall, the report was relatively bearish. However, the market will be more focused on the release of the widely followed US Energy Information Administration (EIA) inventory numbers later today.