april in review

Published 02 may 2018

April showed just how alive and volatile the Oil market remains these days, with a huge number of factors contributing to a jumpy ride on the physical complex and the associated derivatives. This was alongside a burst of financial money entering flat price following geopolitical news with the repeat of the “red-line” rhetoric on Assad’s regime which caused such an enormous risk premium back in 2013.

Open interest further led the futures rally and the market spurred for April North Sea contracts to price strongly

Our take on the market can be
summarised by the following:

  • As April began to price out, a heavy overhang of heavy cargos led by Urals filtered through North Sea cargos. This was further fuelled by Asian and European refineries reducing their run rates as they proceeded with routine refinery maintenance schedules.

  • A sizeable speculative short position in the Dated Brent derivatives contributed to further selling pressure on the complex alongside producer hedging.

  • As the refineries came out of turnarounds, the return of health in the crude market was amplified by a strong Asian pull for Forties crude. The consequent move up in the derivative markets was particularly explosive given an already heavily invested short and therefore limited available sellers to end users needing hedging cover.

  • The price action on Flat price during Q1 suggested $70/bbl was a key psychological level in Brent, having approached and/or broken through the figure multiple times before retracing. This time, with genuine underlying strength and added stimulus from financial money, we firmly broke through this level and embarked on a sustained rally.

  • The underlying strength was seemingly, at least in part, led by a strong Gasoil performance. After the flush out of long positions in Q1, gasoil started to show signs of sustained recovery in the deferred markets and began to price strongly towards the end of April.

  • As the market and financial money started to buy into the underlying strength alongside market rhetoric of Geopolitical premium, the market became heavily saturated, and open interest spiked.

  • The light-heavy picture turned mid-way through the month, as Asian pull supported the N Sea heavier crudes, but had no regard for lighter crudes which tend to clear locally.

  • However, given the investment in the crude contracts, open interest further led the futures rally and the market spurred for April North Sea contracts to price strongly