Crude

Market Overview

Closed WTI arb to Europe: The road to recovery for US stocks

Crude

While net-length in Brent futures has fallen sharply WTI has been much more stable. This backs up our view that the US crude inventories need to recover from lost drawdowns (SPR and more importantly on commercial stocks).

One of the most effective levers is a closed WTI arb, via further WTI/Brent narrowing (August tenor) even despite weaker TD25 rates.

To offset weaker WTI refining margins and relatively expensive landed values, NWE (medium) refiners are benefitting from better economics for sweet crudes from Black Sea/Med, ECSAM and even sourer Murban.

Murban seeks early mover advantage as Hormuz ‘opens’

Crude

Murban is pricing attractively for delivery to Europe in August, especially Med, as tanker transits out of Hormuz pick up in the aftermath of the signing of the Iran-US agreement.

Whilst not typically a major feedstock for European refiners, a distinct lack of interest from Asia (especially China) has helped push Murban towards less traditional buyers.

From a shipping perspective, delivering a Murban cargo to a further away destination (e.g. French Med, Fos) rather than WCI may also provide a better time buffer – i.e. reduce congestion from the rush of tonnage seeking to clear out for the Strait of Hormuz.

Improved Murban pricing for Europe also likely reflects interest from Asian buyers in these prompt cargoes, e.g. potentially seeking clarification on waivers for Iranian crude.