After 2 years of crazy market activity with record lows and highs, this week is probably one of the first weeks that (almost) all prices are in line with historical seasonal levels.
It’s almost surprising that after everything that has happened we could go back to a reality well known to most of us. Perhaps, as the market unwinds before entering the holiday season, traders are happy to be risk off and are unconsciously pricing the market at familiar and comfortable levels?
In any case we seem to be in no man’s land with very little activity and limited opportunities in the short term.
Spreads in Europe and US are showing very typical contango structures very much in line with seasonal balanced markets. Same can be said about cracks (Q1 crack at $2.7/bbl and Q2 at $8.4/bbl) or EW (Q1 at $0.3/bbl).
Easter spreads are pricing China’s potential recovery, and could be the bullish story in Q1. But that still remains to be confirmed. In any case it’s not uncommon to see a flat-to-light backwardation in Q1 in Singapore.
Perhaps the only thing standing out are the elevated reformate prices. ARA Dec Heavy reformate is currently trading at +$100/MT, well above seasonal levels of around +$30 to +$40/MT. But this could easily be explained by the elevated Gas/Nap levels (Q1 trading at +$100/MT, when seasonal averages tend to be closer to +$20-30/MT), on the back of weak Petchem demand.
Even when we look at Arbs, each hub seems to be defending its main territories, but no one is really threatening any other regions. That being said, its worth noting that ARA is slowly positioning itself to open Arbs both west (Arbs to NY are now open for refiners for the first time since November) and East (Arbs to AG and East Africa are looking breakeven). This is something to keep an eye on, particularly if component premiums keep coming off generating positive blending margins.
Finally, Freight is something all traders should be mindful of, particularly when considering to lock in forward arbs. Market is currently backward, but given the ongoing tightness and potential winter bad weather, it would not be surprising to have a rolling backwardation.
In any case, everything seems conveniently priced for this time of the year as traders go a well deserved holiday after an exhausting yet fruitful year.
Merry Christmas everyone!
Felipe Elink Shuurman is CEO and Founder of Sparta. A former trader, Felipe drives strategic vision and growth at Sparta. Before Sparta, Felipe worked and traded for BP, Vertical and Gunvor.
Sparta is a live, pre trade analytics platform that enables oil traders, refiners, banks, hedge funds and wholesalers to have access to real-time and global actionable insights to capture market opportunities before others.
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