Oil Narratives
Oil Narrative
Much has already been mentioned about the strength in global oil prices being products driven, rather than crude. But we are beginning to see the cracks in this story (pun intended) - as the gap in refinery margins across regions is growing.
For much of the US-Iran war we had seen refinery margins in the West (i.e. NWE and USGC) and East move in tandem, and mostly upwards.
But that is diverging now, European complex refinery margins are still holding up, close to their peak seen this year. In contrast, those in SE Asia have fallen much more since H2 Aug.
Part of this divergence in refinery margins is that Asia is higher costs for freight, AG crude (war premiums) and the other element is weaker Asia product prices, made evident in sharply lower E/W values across core clean products.
In the past fortnight we have seen sharp sell offs in E/W swaps across key products markets.
Trying to pick a bottom of a market is always risky but such is the ferocity of the move, that it does make sense to ask if this is in anticipation of stronger Chinese product exports, and therefore refinery runs.
Diesel and Gasoline lead the way falling most sharply but even the 380 EW has come off, breaking its 2-month bull run.
At the very least it seems Chinese product exporters are dipping their toes in the water more than they were in recent months.
With that in mind, at least on diesel and gasoline, we could be close to the floor on September E/W swaps.
