Commodities Feed: Oil Prices Strengthen on Middle Distillate Demand, US Federal Reserve's Hawkish Tone Provides Resistance

The Commodities Feed: Stronger middle distillates

Oil prices strengthened on the back of stronger buying in the physical market. However, a more hawkish tone from the US Federal Reserve will likely provide some resistance to the market.

 

Energy: Middle distillate strength

The oil market strengthened yesterday with ICE Brent settling a little more than 1.6% higher on the day. Stronger buying from Asian refiners more recently has been supportive, whilst Chinese monetary easing earlier in the week has also been helpful. The move has seen Brent trade back above the 50-day moving average. However, hawkish comments from the US Fed chairman overnight suggest that oil might struggle to hold onto this momentum in the immediate term.

API numbers released overnight show that US crude oil inventories fell by 1.2MMbbls over the last week, whilst the market was expecting a small build of around 450Mbbls. Meanwhile, gasoline inventories increased by 2.9MMbbls, whilst distillate stocks fell by 301Mbbls. The more widely followed EIA numbers will be released later today.

 

Middle distillates continue to enjoy some strength with the prompt ICE gasoil crack trading above US$20/bbl, whilst the prompt ICE gasoil timespread has also traded into deeper backwardation, almost hitting US$20/t earlier this week. Gasoil inventories in the ARA region continue to trend lower (after the strong build late last year/earlier this year), which has seen levels fall below the five-year average for this time of year. Refinery maintenance in the Mediterranean and some unplanned outages in Europe recently have provided some support to middle distillates. This support may persist in the short term, however, the eventual return of disrupted capacity and the ramping up of new capacity in the Middle East should help ease this short-term tightness.