THE ONYX VIEW
Published 6 AUGUST 2018
What do we expect IN AUGUST?
Further futures alignment
with physical in Crude
For August, we expect to remain in an oversupplied crude market. We expect Europe will continue to struggle to clear with August maintenance out of the picture, the Asian physical market will continue to slow down - which will filter through to pricing out the benchmark - and the US will continue to export elevated levels of crude to Asia and Europe, putting pressure on all 3 benchmark crudes.
Physical oversupply in products with
margin hedging, maximizing runs and
end of summer cycle
We have seen weak prompt pricing across the barrel and strong indications that refineries are rushing to lock in paper profits, particularly as the physical in the prompt remains underwhelming versus strong sentiment in deferred paper. As the refiners continue to maximize their runs and hedge whilst doing so, it will ensure a steady supply of products to the market. Here is where we expect to see the oversupply of crude transpiring into an oversupply in products - we therefore expect products such as Naphtha, Heating Oil and Gasoil to show signs of weakness. The market will be unable to absorb the steady supply of products, turning sentiment bearish as both weak prompt pricing and high inventories apply downward pressure to the markets. Following this, we will see downside in flat price as the oversupply weakens margins and results in short selling.
However, Gasoline may be the sore thumb as hurricane season in the US approaches. Since the Gasoline market is particularly vulnerable to outages, we expect this product to hold relative to the rest of the barrel through sentiment, and rally in the event of a hurricane.