Spot premiums wild and uneven

Commentary summary:

• Asia perhaps cannot optimise the world’s remaining supply according to normal physical arb levels.

• WTI/Brent is driving massive landed value disparities between remaining arb crude into Asia.

One tricky aspect of commenting on this market, let alone trading it, is that the usual focus points for us have become nigh untradable. Case in point, WTI/Brent, which is a mess, though we still have some general thoughts on it (below) and it is severely impacting general competitiveness of WTI-linked vs Brent-linked crude.

Flat price is at least liquid and directionally we still have a somewhat decent grasp on drivers. We think it can go much higher still.

Escalation between warring parties seems likely this week, but headline risk is huge and outcomes are still basically binary; some kind of backchannel peace agreement (if backchannels still exist) might yet come through in the next days before all out existential war. At which point price collapses.

NB: this paragraph was written this morning prior to Trump’s Truth Social post on talks…but remains in place as a case in point

The last few days have at least seen the physical crude market really come alive, particularly in Europe where diffs had mostly been struggling to react since the start of the conflict. WAF & Black Sea jumped higher late last week, while North Sea’s rally is looking more uniform with Forties perhaps still held back by its sulphur content and the fact that we have WTI landing so cheaply.

That physical is rallying in Europe could be due to Asian buying, or the fact that Europe is also waking up to the fact that conflict will be prolonged.

And today news has emerged that loadings out of Primorsk and Ust-Luga might have been impacted by Ukrainian strikes. It feels like physical should still go higher and again that flat price is simply far too relaxed.

I am still very wary of commenting much on the usefulness of the Dubai benchmark at the moment, which leaves us with basically European vs Americas crude landed values, margins, in both Europe and Asia. WTI and LatAm grades are by far and away the cheapest in the world and can land in both Asia and Europe at huge discounts to European.

This is largely linked to WTI/Brent paper being so wide even though freight (and here we mean TD25/Afras) is so expensive. TD25 and TI/Brent are of course very closely linked and with Apr TD25 at 500 WS this is a big driving factor on top of the USG being decently long sour crude ahead due to SPR releases.

(WTI/Brent driving massive landed value disparities between remaining arb crude into Asia)

That should be a marginal factor though in this market; we’d have thought that basically all crude is bid up to roughly at least the same landed value or at least roughly the same relevant margin accounting for API, into key destinations.

Perhaps in a slightly more normal market this would be a clear buy for WTI/Brent, but as said we don’t feel too comfortable on that in this market.

Maybe one explanation is that Asia continues to struggle with the actual replacement implications of missing AG crude, isn’t able to scour the world physical market for everything possible and keep spot premiums “optimised” at a level that make perfect refining LP-modelling sense.

Afterall, even WTI has its spec limits when replacing just Murban. And needless to say sour Mexican or WAF are also not going to be able to easily replace medium sour AG in certain refineries.

So may Brent is spiking on European buying and some Asian, WTI is artificially weak on TD25, and Asian buying outside of WTI isn’t a strong enough price signal for optimising physical diffs globally currently.

On margins, most are OK for May in Europe, though Forties cracking is now in trouble. In Asia, a lot of light sweet cracking is in trouble except perhaps WTI. Even complex is struggling in certain cases. Mars and LatAm sours are doing fine in Asia too.

Lastly, a special mention of Dangote refinery, which reportedly is now running at full capacity. Obviously, this is barely news relative to the markets’ other problems, but it is at least getting operational at a good time.

Let’s see if that can be maintained. African nations are trying to get supplies from the country now that AG is not an option.