The June ICE Brent/NYMEX WTI spread settled $1.02 wider at $8.13/barrel Friday after hitting a one-month high early in the session amid ongoing fighting in Yemen and bearish supply pressure in the US.
The prompt spread widened to $8.41/b during morning US trade, the highest since March 23, when the spread settled at $8.47/b. NYMEX June crude settled 59 cents lower at $57.15/b, while ICE June Brent ended 43 cents higher at $65.28/b.
Products were led by NYMEX May RBOB, which settled 1.23 cents higher at $2.0079/gal. May ULSD settled 44 points higher at $1.9283/gal.
“The broad perspective is this ongoing concern regarding Yemen, with the Saudis and their allies increasing the pressure there, when we had thought earlier in the week that they were going to back off,” CHS Hedging analyst Tony Headrick said.
“So there’s the familiar risk premium being added to Brent, while here in the US we’ve got inventories — particularly in Cushing — widening the spread.”
US Energy Information Administration oil data released Wednesday pegged stocks at Cushing — the delivery point for the NYMEX crude contract — at 62.2 million barrels, more than 60% above the five-year average.
Platts calculations show Cushing stocks are at 88% of working capacity, which excludes tank bottoms and contingency space. Shell capacity, which includes tank bottoms and contingency space, is closer to 73% full.
“The [Brent/WTI] spread backed off a little bit later in the day after the rig count figure showed a 31-rig drop,” Headrick said.
Baker Hughes’ weekly rig count data showed US oil rigs fell further to 703 rigs, the fewest since October 2010. Rigs are down from 1,609 for the week ended October 10, the data showed.
The relative strength in Brent comes at a time when the physical market — specifically the Atlantic Basin — is glutted with light sweet crude (See story, 1609 GMT). Traders Friday said the volumes on offer in Europe, largely Nigerian barrels arriving in the Mediterranean, was eating into quality-based premiums that sweets typically command over sours.
North Sea sweet Oseberg was assessed at a 29 cent/b premium to the North Sea Dated Strip Friday, while Urals in Rotterdam was assessed at a $1.05/b discount. Oseberg’s premium is down from the plus $1.55/b seen in mid-March.
Analysts said the Brent market would eye developments in Yemen over the weekend.
“Overnight we were mixed, but Brent has had this buoyancy on the increased risk involved in Yemen, as events there seem to be spiraling out of control,” Tradition Energy senior analyst Gene McGillian said.
“And even as supply threat there is limited, its attracting further length into Brent,” he said. “We’ve got record open interest there, driven by a lot of this new speculative length, as many expect US production levels to fall.”
McGillian said that any sustained rally in the oil complex was being held in check by the stark reality of steady supply and production on the market, from both the US — which is still producing near 9.4 million b/d, according to US Energy Information Administration data, as well as Saudi Arabia, where production levels are above 10 million b/d.
“The fact is, every time we turn around, we face increasing inventories,” he said. “Gasoline demand has picked up, and that’s given the market a little support.”
But this could be a similar pattern to February when the market bounced on similar measures, he said, and then fell again to new lows in the face of still-higher production.
“US production levels need to come down close to 1 million b/d to really keep the momentum going higher,” McGillian said.
Despite the day-on-day drop, NYMEX RBOB futures are entering summer-demand season well above the near six-year lows seen in January.
“It’s been pretty impressive to see demand for gasoline increasing ahead of summer,” Headrick said, adding that the low flat price has likely spurred most of the buying interest.
“And, arguably, the economy is doing a little better,” he said.
Prompt RBOB futures settled at $1.27/gal on January 13 and have risen nearly 74 cents/gal since.
ULSD futures were largely unfazed by maintenance on a 90,000 b/d hydrotreater at Phillips 66’s Ponca City, Oklahoma, refinery (See story, 1447 GMT). A hydrotreater reduces sulfur and nitrogen to produce high specification distillates.