Oil Narratives
Oil Narrative
In less than one month Brent has climbed over $20/bbl.
A souring of the Iran-US MOU started the rally this month. But continued military attacks on Iranian soil and on US bases in the Middle East have provided support thereafter.
Add to that the fresh threat of attacks to Saudi shipping in the Red Sea, and it's clear "risk-on" mode is back on.
The sharp rise in flat prices across futures contracts has all but ended the possibility of more flirtation with a "mini contango".
We briefly saw this on Brent at the start of the month, but geopolitical risk is now elevated: strikes on Iranian territory and US bases in the Middle East have ratcheted up in intensity as July has progressed.
Meanwhile, fresh fuel to the fire in the form of supply risks (Saudi Red Sea cargo transit and CPC loadings) is adding to the prompt tightness in the physical crude market.
Crude flat prices are making the headlines, but diesel is the real heavy lifter across the barrel right now.
Total refinery margins (paper) are up in Europe with the upward trend in cracks also seen for EBOB and HSFO.
But diesel cracks are outperforming the rest of the barrel considerably; its spread to gasoline, even during the summer season, is climbing.
Despite the rise in European diesel prices, the key arbitrage routes from the East and USGC still do not provide a strong enough signal that Europe’s tightness will ease anytime soon.
