Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
The Brent/Dubai Exchange of Futures for Swaps, a key indicator of ICE Brent crude futures’ premium to benchmark cash Dubai crude, rose to a 44-month high Wednesday amid the recent strength seen in Brent futures prices.
Front-month May EFS was assessed at $4.04/b at 0830 GMT, close of Asian trade Wednesday — crossing the $4/b mark for the first time since July 4, 2014, where it stood at $4.07/b, S&P Global Platts data showed.
The recent uptrend seen in Brent futures prices was a major reason behind the widening of the EFS, industry sources said.
ICE May Brent futures contract crossed the $70/b mark last Friday for the first time since January 2018 and was volatile since then, rising above $71/b during the intraday trade session on Tuesday, before retracing some of its gains.
The ongoing geopolitical tensions in the Middle East combined with the US-China trade war, fundamental support from falling US crude inventories and growing global demand have all been contributing factors to the strength seen in prices, analysts said.
“Ongoing and underlying support for crude prices has been coming from increasing expectations that the US will not be re-certifying the Iran nuclear deal,” Vandana Hari, founder of Vanda Insights, said earlier this week.
“Market expects the worst case scenario and this injects a geopolitical premium to prices,” she added.
US President Donald Trump faces a May 12 deadline on whether to waive oil-related sanctions on Iran as part of the accord, formally known as the Joint Comprehensive Plan of Action.
Adding to the rhetoric, the decision to appoint John Bolton as national security adviser, who is a non-supporter of the Iran deal, further increased skepticism among investors.
Moreover, the ongoing trade war between the US and China had added to volatility in prices, analysts said.
Besides the import tariffs on steel and aluminum, the Trump administration is considering a crackdown on Chinese investments in the US technology sector.
“A fresh focus by the US administration upon the tech sector induced turmoil for prices and invited back volatility,” IG market strategist Pan Jingyi said.
Optimism over the possible extension of the OPEC-led crude oil production cut agreement has also risen in the market on the back of comments made by Iraq oil minister Jabbar al-Luaibi Wednesday.
“By the end of this year, we will assess and decide how to go ahead,” he said at the Iraq Energy Forum. “Some are suggesting a three-month extension, some suggest a six-month extension.”
OPEC Secretary-General Mohammed Barkindo, speaking at the Iraq Energy Forum, welcomed Saudi Crown Prince Mohammed bin Salman’s support for the organization’s efforts to make permanent its framework of cooperation with Russia and the other partners.
“It would be helpful to get this support from all prime ministers and leaders of the countries,” he said.
“Anyone who doubted OPEC’s resolve to reduce oversupply should not underestimate them now,” Price Futures Group energy analyst Phil Flynn said in a note referring to comments made by the Saudi Crown Prince.
Crude prices have however, retraced some of their gains since as a bearish report on US crude inventories released by the US Energy Information Administration on Wednesday weighed down prices.
US crude stocks rose 1.643 million barrels week on week to 429.949 million barrels for the week ended March 23, against analysts’ expectations of a build of 1 million barrels.
Crude oil production in the US also increased 26,000 b/d last week to 10.433 million b/d, an all-time high, according to weekly EIA estimates that go back to 1983.
In reaction, NYMEX May crude contract settled below the $65/b mark on Wednesday at $64.38/b, while the ICE May Brent crude contract fell 58 cents/b to settle at $69.53/b.
As of 0300 GMT, ICE May Brent crude contract was at $69.78/b, while the EFS was at $4.18/b.
https://www.platts.com/latest-news/oil/singapore/brentdubai-crude-efs-hits-44-month-high-on-strong-27944342Questions? Ask Phil Flynn today at 312-264-4364