While prices initially slid yesterday following a larger-than-expected OPEC+ supply hike, the market managed to turn positive with Brent settling almost 1.9% higher on the day. The increase in August Saudi official selling prices provided some comfort. Furthermore, the market is still tight in the near term. This is reflected in the strength in the prompt Brent timespread. The expected supply surplus won’t materialise until later this year, when we expect more sustained downward price pressure.
Increased attacks on vessels passing through the Red Sea by the Houthis in Yemen provided further support to the market yesterday. Further attacks could see an increase once again in vessels avoiding the Red Sea. Instead, they would take a longer route around the Cape of Good Hope.
The middle distillate market continues to show increasing signs of tightness. The ICE gasoil crack remains well supported around US$24/bbl, while the prompt ICE gasoil timespread surged to a backwardation of more than $56/t. Speculators hold their largest net long in gasoil since July 2024. Middle distillate inventories in the US are at their lowest in more than two decades for this time of the year. In Europe, and specifically the Amsterdam-Rotterdam-Antwerp region, gasoil stocks have been trending lower since February. Stronger middle distillate cracks, along with growing OPEC+ oil supply, should support stronger yields in the months ahead. Still, this is worth keeping an eye on, given the potential risk of moving into the northern hemisphere winter with relatively low middle distillate stocks.