Fuel Price Index [05.17.2018]

Oil prices have risen on the back of U.S. sanctions on Iran, but short-term glut in the physical market is softening the blow – for now. The market, however, is starting to price a more dire situation by year-end.

Oil refiners have plenty of crude at hand right now, with unsold cargoes in the north-west Europe, the Mediterranean, China, and West Africa, according to physical traders who asked not to be named discussing market movements.

The overhang is reflected in Brent nearby time-spreads, which are fast narrowing – a sure sign of an oversupplied market. The July-August price spread for example has fallen from a peak of $0.63/bbl in mid-April to a five-month low of $0.24/bbl now despite U.S. President Donald Trump withdrawing from the Iran nuclear deal and announcing a raft of new sanctions that threaten to cut crude supplies.

Deferred oil spreads are widening, however. The November-December Brent spread rose to $0.50/bbl on Wednesday, it’s the strongest ever, suggesting that traders are starting to price tightness despite the current excess.

Jim Slattery, President
Original Energy
Tel: 914-847-0317
Cell: 347-244-4046