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Commodities: Refined Product Strength Continues to Grow

Published 08/02/2024, 09:37
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Crude oil prices remain rangebound. However, refinery margins continue to strengthen driven by tightness in middle distillates. Gasoline has also played a role in this strength, with cracks rising on the back of falling US inventories.

Energy - US Product Draws

EIA weekly inventory numbers show that US commercial crude oil inventories increased by 5.52m barrels over the last week, which was above market expectations. This build was driven by a rebound in crude oil imports, which increased by 1.3m b/d WoW, while exports also fell by 298k b/d WoW. EIA numbers also showed a 300k b/d increase in crude production. The refined product numbers were more constructive. Gasoline inventories fell by 3.15m barrels over the week, while distillate stocks fell by 3.22m barrels. Looking at the refinery utilization rates in the Midwest, it does not appear as though the data has taken into account the outage of BP’s Whiting refinery, given that utilization rates in the region actually increased by 4.1pp over the week to 95.1%. The outage is likely to be reflected in next week’s numbers, which suggests we could see some further tightening in product stocks.

The fall in US gasoline stocks has provided further upside momentum to gasoline cracks with the prompt RBOB crack breaking above US$20/bbl, a level not seen since September last year. The tightening in middle distillates also continues to push the prompt heating oil crack higher. And it is trading at more than US$44/bbl, up from around US$35/bbl at the start of the year. The tightness in middle distillates is not isolated to the US. The European gasoil crack is trading at around US$31/bbl. The European middle distillate market will be feeling a bit more tightness due to the ongoing disruptions in the Red Sea.

The strength in refinery margins should provide some support to crude oil, by driving stronger crude demand as refineries look to increase run rates and take advantage of stronger margins.

Metals – China Continues to Boost Gold Reserves

The latest data from the People’s Bank of China (PBoC) shows that China expanded its gold reserves for a fifteenth straight month in January. Gold reserves grew by about 10 tonnes to a total of 2,245.4 tonnes last month. Previously, the World Gold Council also reported that central bank gold purchases were once again led by China. Chinese reserves grew by 225 tonnes last year.

Numbers from SMM show that Chinese refined copper production fell 3% MoM to 970kt in January, following scheduled smelter maintenance and a tight supply of blister. Tightness in the concentrate market has also resulted in spot treatment charges falling significantly, which could be forcing some smelters to reduce operating rates. Tightness in the concentrate market is likely to eventually feed through to tightness in the refined copper market.

Agriculture – WASDE Release

The USDA is scheduled to release its monthly WASDE report later today. The market expects that the agency could increase its US soybean ending stocks by 5m bushels to 285m bushels, while trimming its corn ending stock estimates by 13m bushels to 2,149m bushels. Turning to global supply, the agency is expected to revise its Argentine corn and soybean output estimates slightly higher, while Brazilian corn and soybean production estimates are expected to be trimmed to 124.8mt (-2.2mt) and 153.7mt (-3.3mt) respectively. Global ending stocks for corn are expected to decline from 325.2mt estimated in January to 324.6mt, while for soybeans, ending stock estimates are expected to fall to 113mt from 114.6mt.

Disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

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