Crude
Market Overview
US crude inventory, SPR plus commercial combined, are going to draw hard over the summer as runs accelerate in the WoS and with Asia pulling hard for as many replacement barrels as it can get.
Cushing stocks will also draw (they have already started to) as exports are maxed out from the USG and with PADD-2 intake set to rise seasonally.
The shift from Afra TA trade to VLCC Asia trade may put TD25 rates under relative pressure. Afra supply in the USG is now large.
WTI/Brent over the summer may have to trade narrower to eventually cut off max US exports to the world once inventories get low enough.
European refiners were under pressure earlier this month as physical Brent diffs sky-rocketed. This has since cooled down given the message that was implied by $20-25/b premiums was that Europe could basically not run crude.
It is probably fair that Europe is put under some pressure not to run max and let Asia take some extra crude (e.g. WTI, CPC). But Europe should fare better than Asia overall in terms of utilisation rates during this crisis.
Physical Brent premiums may be at fair value when hydro-skimming margins are negative, but are probably overvalued if complex margins are negative.
Generally, European arb to Asia remains limited in terms of econs. Asian demand for WTI will continue apace and may even increase at the expense of WTI to Europe flows.
