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Insight Weekly Market Report Market report - 04.06.2024

Market Report Week 23 - 04.06.2024

Other insights Jun. 04, 2024
Market Report Week 23 - 04.06.2024 Download the report here

Summary

This week's economic data will focus on industrial production and trade. The European Central Bank's interest rate decision is the most anticipated event, with a potential 0.25% cut being the first by a major western central bank in years. This could weaken the Euro until the US Fed follows suit.

Oil markets saw a decline in the rig count and a slight rise in WTI oil prices. OPEC+ extended its production cuts but plans a gradual rollback, drawing mixed reactions from analysts. The decision partly reflects OPEC's bullish demand outlook, but some commentary suggests they want to see lower interest rates and stronger demand growth.

Inflation remains a concern in both the eurozone and the US, running above target. The ECB may initially cut rates but later slow down, while the US Fed is likely to maintain a wait-and-see approach. The US revised its Q1 GDP growth down due to a slowdown in spending. Rising interest payments on US debt pose a challenge to government spending and economic growth.

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Oil

- US drilling activity dipped slightly (down 1 rig to 496). Weekly average oil price increased modestly ($78.50/bbl for WTI). Natural gas price at Henry Hub dropped (down to $2.56/mmbtu).

- OPEC+ voluntary cuts extended 3 months, then gradually reversed over 12 months starting October. Total cuts (around 3.6 mb/d) remain until end-2025.

- Analyst views on the roll-back varied: JP Morgan (neutral), UBS (bullish), Barclays (mildly negative), Goldman Sachs (bearish).

- OPEC expects strong demand growth and waits for lower interest rates and improved economic conditions before increasing production.

 

- Production capacity assessment delayed to late 2026. Unclear OPEC data makes it difficult to precisely measure cuts in 2025.

 

The Economy

- Eurozone inflation rose to 2.6% in May, exceeding the ECB target. Service inflation is particularly sticky, driving concerns about long-term price increases.

- The ECB is expected to raise interest rates by 0.25% but may slow down further increases later in the year.

- US core inflation also rose, with the core PCE index reaching 3% in April. The Fed is likely to maintain a wait-and-see approach.

- US Q1 GDP growth was revised down to 1.3%, reflecting slowdowns in consumer spending, exports, and government spending.

- Rising interest payments on the US debt are putting a strain on government spending, potentially impacting future economic growth.

 

Vessel rates

  • New York

    Demand is static up and down USEC. Liners tendering out on Q3 biz.

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  • Fujairah

    As of Monday, May 27 total oil product stocks in Fujairah were reported at 20.363 million barrels with a build of 858,000 barrels or rise of 4.4% week-on-week. The stocks movement saw builds in light distillates and heavy residues while middle distillates showed a draw. Across all grades avails are good in the ports of Fujairah and Khor Fakkan. VLSFO continues to see weakening demand which is causing pressure on delivered prices with an oversupply of barge capacity still hanging in the market. HSFO tightness has eased, and barge avails are ok with lead time down to 5-6 days from 8-9 past weeks.

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  • ARA

    It appears that VLSFO and HSFO will get tighter in the near future, but currently the market remains well supplied. MGO continues to see problems.

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  • Singapore

    Expect continued pressure on VLSFO prices in Asia due to high supply from the West and weak demand in Singapore. Stockpiles are sufficient, and barging capacity shouldn't be an issue. The HSFO market looks positive for early June. Stable demand and strong crude prices should support delivered premiums. Stockpiles are adequate, and barges should be available for prompt deliveries. Recent market strength reflects tighter supply, healthy bunker demand, and seasonal support from summer power generation in South Asia. Weakness in the Asian gasoil market is likely to persist through June 7th due to the Indian monsoon season. Production cuts are not expected. Singapore's gasoil stockpiles remain high, exceeding 10 million barrels for the twelfth consecutive week.

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  • New York
  • Fujairah
  • ARA
  • Singapore

Forward Curves

3.5% Barges R'Dam Curve

Weekly Report 040624 Page 0033

The 3.5% barges’ curve is in contango for the first three months of the curve (one less than last week) and shows a $14.8 backwardation on the 6-month contract (front month minus the six-month contract). Contango is $3.3/mt at the two-month horizon and $3.3/mt at the three-month horizon. The front rose $4.5/mt while the six-month fell $0.8/mt.

VLSFO 0.5% R'Dam Curve

Weekly Report 040624 Page 0034

The VLSFO 0.5% backwardation increased $2.3/mt to -$13.5/mt compared to a week prior. Comparing the front month to the second month shows only a $1.2/mt in backwardation.

ICE Light Gasoil Curve

Weekly Report 040624 Page 0035

The ICE Gasoil curve fell $7.3/mt at the front compared to last week in absolute terms (May 31st compared to May 24th). The six-month fell by $4/mt. The curve is in contango but falls between the 5th and 6th-month contract. The time spread for the 6-month period increased $3.3/mt to plus $9.5/mt.

VLSFO 0.5% VS LGO and 3.5% Barges

Weekly Report 040624 Page 0036

The relative value of VLSFO compared to LGO at 6 months is flat at 70% and, in absolute terms, down $3 at -$222/mt compared to 73% or $199/mt below LGO at the front. That $199/mt is down $9/mt on last week’s reading when the front was 72% of LGO.

Weekly Report 040624 Page 0033 Weekly Report 040624 Page 0034 Weekly Report 040624 Page 0035 Weekly Report 040624 Page 0036

Our point of view

Brent dropped 3.5% on Monday after the market absorbed the OPEC+ reversal decision. On Tuesday another 1.7% was taken off the price. For the first time in many months, the market has reacted to an OPEC decision. Even though the reversal will take time to show up in the physical balances, the mood is bearish. That is despite the many reassuring words from the investment banks that the balances are hardly impacted. Well, the oil market says otherwise for now. And the same oil market is putting its bets that oil demand growth is much weaker than the OPEC Secretariat projects. So, for now, the price is down, and will likely move a bit further down until some physical floor is found and the numbers have been crushed. The EIA will publish its assessment of the new market balance next Tuesday. As the market is finely balanced, the additional barrels are likely to drive the average price down, as much as the price was driven up by tightening balances over the first few months. But still, the market appears to be taking an advance cut to the price because it will still take some time before the barrels arrive at the shores of the receivers.

 

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