OPEC+ to bring back volumes (on paper) in Q4, but actual supply to market will be dictated by demand, which for now remains weak

3 June 2024 Time to read:  minutes

A muted flat price response to OPEC+’s latest announcements was always likely with expectations already in place for a roll-over of some sort.

That the group may bring back some of the voluntary cuts – if slowly – starting in Q4 may be an outward signal of confidence in oil demand, but can always be paused or even reversed if prices call for it.  


ICE & Nymex crude spreads came under further pressure w-o-w. (Sparta Live Curves)

The market has also focussed on ‘unexplained’ supply out of the group over recent weeks. It may well be that if compliance is tightened, actual OPEC+ supply to the market could be cut over H2 instead of raised.  

Meanwhile, the broader market is growing increasingly concerned over the US consumer, US end-user oil demand (indicators of which have suffered from data accuracy over May but which remain underwhelming), and its global implications. 

Back to the short-term signals, a lot of the indicators of oil weakness we pointed to last time remain just as weak, if not weaker. This is particularly true of the Atlantic Basin, but is not limited to it: 

  • The physical Brent market deteriorated further, as did the EFS.  
  • Cushing spreads weakened substantially despite an inventory draw in the hub as well as in PADD-3, led down by ICE Brent.
  • MEH premiums to Cushing also fell (as did waterborne premia to MEH).
  • Market talk is still focussing on poor European buying and unsold barrels in the North Sea. 
  • Dubai structure and spot premia continue to soften. 

On the WTI complex, slackening premia on the Gulf Coast may help US barrels to compete a little better in the Far East against Murban barrels, whose premiums have also been under hefty pressure as Dubai structure has weakened and presumably as a response to the fact that Atlantic Basin arbs have been competing hard in May.

VLCC rates to bring WTI to the Far East have dropped some 10% w-o-w, and this may be a reflection of the above.  


WTI is landing at a 50 cent premium to Murban in late August. (Sparta Global ARBS – ARBs Dashboard)


WTI landing in late August in NWE on a Suez is now at a 50+ cent premium to Forties. The physical Brent market remains weak. (Sparta Global ARBS – ARBs Dashboard)

But arguably WTI, which is landing in its earliest respective windows at a 50 cent premium to both Murban (in Far East) and Forties (in Rotterdam), may need to turn more competitive, meaning WTI/Brent spreads widening back out short term, on the below assumptions:  

From the US perspective, the market consensus has been that maintenance on the Wink-Webster pipeline will direct more volumes into Cushing this month, which may still see at least some builds happen.

Presumably we should start seeing this play out in the next one or two DOE weekly releases.

If WTI is to price more convincingly into NWE & Asia, that might necessitate WTI Cushing (vs ICE Brent) to do some leg work here rather than MEH premia (already reduced to $1.10/bbl on Friday), since PADD-3 stocks will presumably struggle to maintain somewhat elevated levels with Wink-Webster offline and with PADD-3 crude runs sky-rocketing. 

What is more, we should probably ask where the reported substantial overhang of cargoes in the North Sea itself may have to clear to in the coming weeks.

If Asian demand (including a lack of buying from China) is to remain poor for the time being, and Europe is not ready to soak up cargoes in NWE, then the Americas may be an increasingly important outlet, which may put further pressure on the WTI complex.

One indication we can use with the Sparta tool is the USAC destination; July landing Brent-linked grades, including Guyanan, continue to make gains on competitors out of the Middle East and Brazil, with WAF also competing albeit not quite as convincingly.   


North Sea/Brent-linked grades are pricing very well into the USAC. (Sparta Global ARBS – ARBs Dashboard)


US PADD 3 crude intake is rocketing higher (Sparta: EIA)

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