Oil prices firmed yesterday, a trend that continued in early morning trading today. Trade talks between the US and China appear to be progressing, with discussions set to continue today. The US also appears willing to ease some tech export restrictions in return for China easing limits on rare earth exports. This is providing some support to the market. Meanwhile, nuclear talks between Iran and the US don’t appear to be progressing, providing some tailwinds for prices. Iran is not willing to compromise on its right to enrich uranium, something the US won’t accept.
The latest trade data shows that Chinese crude oil imports were relatively weak in May, coming in at around 11m b/d, down 5.7% month-on-month and 0.8% lower year-on-year. Weaker imports were partly driven by refinery maintenance; May is generally the peak for such maintenance. However, cumulative imports for the year are still up 0.3% YoY.
The ICE gasoil market continues to point towards tightness in the spot market. The prompt ICE gasoil spread has seen its backwardation surge to almost US$16/t, up from around US$8/t a week ago. In addition, the ICE gasoil crack is holding firm. Speculators also bought the market over the last reporting week, while open interest in ICE gasoil has hit record levels. Long open interest from swap dealers remains near record highs, suggesting a potential increase in consumer hedging.