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President Biden considers limiting exports to Latin America, placing pressure on President Bolsonaro

By: Harry Altham, Energy Analyst, Market Analysis EMEA & Asia

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President Biden considers limiting exports to Latin America, placing pressure on President Bolsonaro 
 
Harry Altham
Energy Analyst, EMEA & Asia
harry.altham@stonex.com

 Oil looks like it will end the week lower for the first time in two months, as the FOMC meeting continues to weigh heavily on markets. Despite a 1% fall in the Bloomberg dollar index, oil prices have been unable to capitalise fully on the favourable exchange rate environment; a wider selloff in equities has put the brakes on the bullish fundamentals seen this week (namely record gasoline exports to Latin America at 1.88M bbd) and has left Brent hovering close to the $120 mark. The exports, coupled with struggling domestic U.S. oil product inventories and a growing energy trade deficit with Europe, is causing the Biden Administration to consider limiting oil product exports so that domestic stockpiles can build. Such a move would place intense political pressure on Brazil’s President Bolsonaro, who is currently engaged in a dispute with Petrobras about fuel prices – months before the Brazilian election. DOE data also showed a 0.5% fall in refinery utilisation (although it remains very high at 93.7%), and a 100k bbd fall in gasoline supplied, implying a small decline in weekly demand (attributable to the previous week’s Memorial Day Weekend). 

ARA GASOIL INVENTORY CONTINUES TO DWINDLE
Data from Europe’s ARA region has shown gasoil stocks to have fallen to a new eight-year seasonal low, despite increased imports arriving from the United States, although fuel oil and jet fuel stocks are hovering near seasonal averages. An increasing number of refinery outages across Europe are causing further tightness, with the 60K bbd Danube refinery unable to produce diesel for another three weeks due to a fire and Austria’s 200k bbd Schwechat refinery running at just 20% capacity following the explosion of a distillation unit. Despite the disruption, gasoil spreads have narrowed (Q22/Q23 spread narrowed by $19 yesterday [9%]) on the back of a relatively weaker week across the oil complex, although we believe that recent fundamentals pertain to some further strength, particularly ahead of peak imports for this month (which is expected next week). Interestingly, the Z22/Z23 spread, a strong indicator of forward curve sentiment, remains the only spread down the gasoil forward curve that has strengthened ($0.75 to $244 in backwardation), which we believe should be interpreted as a sign that the weakening across the remainder of the forward curve will not last, particularly if next week’s data is as expected. 
 
WEST african oil finding new destinations amid falling chinese demand

Increasing Chinese purchases of Russian oil are changing the global flow of oil, as China begins to reduce purchases from its traditional trading partners. China purchased around 75% of Angolan Heavy Crude last year but is finding that it can procure greater value in Russian grades, which are trading at up to a $40 discount to benchmark prices. Moreover, freight costs are lower from Russia, particularly for ESPO and West Siberian blends which have shorter distances to travel to reach Chinese markets. Out of 37 June shipments offered from Angola, seven have yet to be allocated to a buyer as typical demand from China disappears. That said, European refineries are rapidly increasing purchases from the region; Angolan production, at 1.2M bbd, is at its greatest since September 2020 and long-term contracts have been signed to supply oil to Italy and Portugal. We expect Europe to become the predominant purchaser of West African oil, although the 3.26M bbd total output across West Africa means Europe will also need to import crude from elsewhere if it is to ensure the sustainability of its stockpiles.    

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Source: OPEC, StoneX
 
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