General Index Oil Refinery

Global Market Analysis, 07 January 2022

- Fading Omicron fears offer oil investors new year’s boost
- Eurobob Gasoline Activity in 2021
- Jet Fuel North West Europe MOC Activity in 2021

Fading Omicron fears offer oil investors new year’s boost

Global oil markets are in a period of renewed bullish fervour on diminishing Omicron Covid-19 fears. Since we last issued a report on 16 December, Brent futures have rallied from around the US$75/b mark to some US$82.50/b (written 0900 GMT on 7 January).

General Index - Brent, LSGO Prices

The 10% gains bring the market within touching distance of territory achieved end-October, when the global energy crunch had bolstered markets; Saudi Arabia was rebuffing calls from the White House to go faster in OPEC+’s planned production increases; and fears of a colder-than-expected winter were drawing down inventories of oil, gas and coal.  

The emergence of the highly transmissible Omicron variant end-November did more to dampen inflation-boosting prices than President Biden was able to achieve corralling the world’s largest oil-consuming nations into releasing from their Strategic Petroleum Reserves. Brent tanked more than $9/b in a single session on 26 Nov.

Despite the reimposition of mobility and social restrictions across Europe, investors appear to have been one step ahead, interpreting data suggesting Omicron is resulting in less-acute illness among the vaccinated, lower hospitalisations and ultimately fewer deaths as a sign this latest wave will be shorter and won’t dent fuel demand in the same way as previous outbreaks.  

OPEC+ will extend its 400,000 b/d production increase into February, a sign of confidence demand growth will not be seriously derailed by Omicron, despite records number of positive coronavirus infection being reported. The bulls are also helped by OPEC+ underdelivering on its planned output hikes.

Rising fuel stockpiles in the US capped gains midweek, but supply-side fears around unrest in Kazakhstan and disruption in Libya kept the market on track for a strong start to the new year. On product markets in Europe, jet fuel was the week’s main winner, as a tighter supply backdrop bolstered prices.

The gains on the CIF North West Europe Cargo market have moved jet above diesel for the first time in over a year. A milder winter has taken the shine off the distillate portion of the barrel. Meanwhile gasoline fell on lower export appetite to North America, where inventories have been on the rise.  

General Index ERP Prices

Jet fuel imports to NWE from East of Suez, a key indicator of supply-side dynamics, are well down for January. Current Kpler estimates put the flow at 375,000 MT compared to 1.045mn MT in December. A lack of availability for the second half of January, the period currently captured by the benchmark pricing window, has been met by sustained bidding activity. Kpler data shows more cargoes have been sent to the United States this month, both into the East and West Coasts.

General Index, Jet vs ULSD

Light ends enjoyed a gentle price increase over the festive period. The Propane NWE CIF Large Cargoes assessment increased by 17% since 20 Dec. This is a trend which has been very closely followed by butane and naphtha, which have experienced price appreciations of 12%. Despite this, light end cracks have all fallen significantly over the past two weeks.

The butane crack performed worst, falling $4.75/b, with Propane not far behind, down $3.20/b.  Meanwhile, the naphtha crack depreciated by $2.60/b leaving NWE CIF cargoes at only a $0.40/b premium to Brent. The last two weeks of Dec saw propane and butane imports into NWE follow their respective yearly trends, with propane imports rising in the final week and butane imports falling. Imports of both commodities are at a three year high.

US propane stocks remain at the bottom of their five-year range and are continuing to decrease week-by-week.

David Elward, Senior Pricing Analyst
David Elward, Senior Pricing Analyst
+44 7858 412 741
Arran Brodie, Energy Analyst
Arran Brodie, Energy Analyst
+447807 906395
Register to receive more articles like this one via email, as well as all the latest news from General Index.