Overheated

As crude prices continued to rally, with ICE Brent crude prices reaching 80 $/b at the prompt, we are starting to see signs that the physical market and prompt pricing are diverging from longer-dated futures. Indeed, ICE Brent prompt time spread weakened to 79 cents yesterday, at odds with the flat price dynamic. Angolan supplies rose as cargoes for November loading emerged on Monday, adding to the backlog of a part of the October-loading Nigerian loading program, still unsold by lack of buying interest. Nigerian and Angolan grades in the current refining backdrop should be bid up by refiners, as their light sweet composition makes them valuable for refiners who want to curtail natural gas consumption in their hydrotreating/hydrocracking units. Yet, pricing remained worrisome for these grades. Murban futures flipped to a contango at the prompt, after the UAE increased their volumes offered for delivery. Even by looking at financial factors, the dollar continued to strengthen, which usually dents crude oil flat prices, while 10y Treasury yields continued to rise to 1.53%, and inflation expectation only increased moderately, indicating a riskier environment, usually detrimental for commodity futures.

Ahead of the OPEC+ meeting, which should increase volatility, we remain cautious about the latest market moves in crude outright prices and see increasingly worrisome signs coming from physical crude prices.