Crude Drifts Lower After Rally Last Week

Crude is drifting lower with ongoing concern for global oil demand despite support last week from a potential tighter supply-demand balance this year, reducing inflation expectations and a weaker US dollar.

• Brent MAR 23 down -0.8% at 84.62$/bbl
• WTI FEB 23 down -0.7% at 79.31$/bbl
• Gasoil FEB 23 down -0.1% at 931.5$/mt
• WTI-Brent up 0.05$/bbl at -5.04$/bbl
• Near term oil demand concerns and recession risks are weighed against upside risks from Russian supply and a Chinese demand recovery this year.
• The prompt time spreads are still in contango suggesting ample near term supplies due to weak demand. Concerns for short term China demand due to high covid case numbers are adding to weak US demand data to keep near term spreads negative. The WTI 1-2 prompt spread is hovering just above the lowest since late 2020. Higher import quotas and signs of Chinese crude purchases for February and March and are supporting demand optimism with longer dated spreads still in backwardation.
  • Brent MAR 23-APR 23 up 0.01$/bbl at -0.26$/bbl
  • Brent JUN 23-DEC 23 down -0.12$/bbl at 2.61$/bbl
• Product crack spreads are continuing the gradual trend higher over the last week with supply risks providing support, but upside is limited by weak demand. The upcoming EU ban on Russian products from 5 Feb is a significant risk to global supplies especially for diesel with current European supplies needing to be rediverted elsewhere or be missing from the market. Global diesel stocks are still below normal despite an increase in inventory levels over the last month.
  • US gasoline crack unchanged at 26.52$/bbl
  • US ULSD crack up 0.3$/bbl at 57.44$/bbl