Oil Defies Broader Risk-off Sentiment: Commodities Update

The Commodities Feed: Oil resists risk-off move

The oil market managed to settle higher yesterday, going against the broader risk-off move seen in markets. The data calendar is fairly quiet today with just the usual EIA inventory numbers out later.

 

Energy - Gasoil cracks weaken

Despite the heavy sell-off in equities yesterday, along with further strength in the USD, ICE Brent managed to settle a little more than 0.7% higher on the day. The price action suggests that tightening fundamentals are largely driving the market at the moment. Although clearly, external influences will be providing some headwinds to the oil market.

Overnight the API released its latest US inventory numbers. Overall the report was largely neutral with crude oil inventories rising by 1.59MMbbls over the week, while gasoline inventories fell by just 70Mbbls. More supportive numbers from the release were the 1.7MMbbls decline in distillate fuel oil stocks and the 828Mbbls decline in Cushing crude oil inventories. The decline in inventories at the WTI delivery hub continues to see the prompt WTI spread trade into deep backwardation and it is currently trading at over US$1.60/bbl. The more widely followed EIA inventory report will be released later today.

Gasoil cracks have continued to come under pressure this week despite the Russian export ban on diesel and gasoline. The November ICE gasoil crack is holding just above US$30/bbl. The lack of sustained strength in the gasoil market following the announcement appears to reflect expectations that the Russian ban will not remain in place for very long given domestic storage constraints. In recent days we have already seen the Russian government tweaking the ban by allowing the export of low-quality diesel and bunker fuel.