Energy-sector correction

Font-month prices in the crude and refined product market dropped sizably, with Dec-21 ICE Brent dropping from 85 $/b to 82 $/b before rebounding on early Thursday. The two drivers likely to explain the correction are diesel cracks continued weakening since Monday and falling US demand reported by the EIA. For diesel cracks, TTF front-month prices corrected to 76 EUR/MWh, which lowers hydrocracking costs and the need for oil-to-gas substitution. Indeed, yesterday’s comments from President Putin saying that Gazprom storage site in Europe would be filled after Russian storages were at an adequate level improved the perceived security of supply in European gas markets. 

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Secondly, the weekly EIA report showed falling demand in the US, correcting by 2 mb/d w/w. Yet, gasoline stocks were still depleted by 2 mb, while US refiners in the Gulf Coast region operated at reduced rates due to planned maintenances. Cushing storage was depleted by 5 mb w/w, leaving the hub at about 27 mb. Yet, pipelines linking the hub have now markedly improved compared to periods prior to 2019. The hub will therefore no longer be a chokepoint or area of concern if stocks continue to drop, as PADD3 stocks and Canadian oil may be swiftly transferred to the Cushing pricing point.  

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