But with physical diffs strong, margins are becoming a risk needing watching
Commentary summary:
• North Sea FOBs surging, keeping up with WTI Afra landed values. But VLCC rates are weak into NWE.
• Simple margins in Europe are heading to the zero line.
• While we evidently see crude demand as strong, more of the substantial US product builds seen last week might see cracks drift lower and necessitate a little softening in physical crude diffs that are already elevated y-o-y.
The North Sea crude diffs rose substantially last week. Most grade diffs are up substantially y-o-y, while Sverdrup reached levels last week not seen since 2023.
The arbitrage window to the East was already closed, and this recent price movement further solidifies the signal of low flows heading East.
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