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Arab Light Prices Rise, but Last Week’s Payroll Data Still Fresh in the Memory

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

Arab Light Prices Rise, but Last Week’s Payroll Data Still Fresh in the Memory
 
Harry Altham
Energy Analyst, EMEA & Asia

Crude is set for a second consecutive daily gain, as optimism grows for a consumption-led economic recovery in China, consumer of around 15M bbd of oil and products. Reflected in this optimism was Saudi Arabia’s raising of Arab Light prices to Asia by $0.20 to $2.00/bbl above Oman/Dubai for March delivery, which marks the first m/m increase since prices were raised to $9.80/bbl above the benchmark for September 2022. The perception of strong demand in Asia is shared by several OPEC members, although the Saudi Energy Minister Prince Abdulaziz bin Salman has stated it is too early to ascertain whether output increases are necessary ahead of the next OPEC+ meeting in three weeks.

jobless data not supportive for brent

The raising of spot prices doesn’t fully explain the market’s wider considerations. Brent fell by nearly 8% last week as weak OECD economic conditions turned the prior week’s resistance at the 100-day MA into downside momentum, which took an acute turn after Friday afternoon’s exceptionally strong U.S. jobs data, showed nonfarm payrolls increase by 517k jobs – bringing the jobless level to its lowest since 1969. Markets certainly view the resilience of the labour market as a challenge to Jay Powell’s dovish tones at last week’s press conference; the Fed Chair has frequently cited the need to be ‘led by the data’ in recent months. We will get CPI data next Tuesday, and the PPI comes in on the Thursday – we view the dynamic between labour market strength and inflation as the key determinant of the Federal Reserve policy outlook beyond March, meaning next week’s data will be critical for the outlook in the coming weeks. 

refinery strikes to pressure european middle distillate markets
 

TotalEnergies has cut run rates at its French refineries, saying that 56% of its workforce is on strike and that deliveries from its facilities have been impacted. This is the third such strike in the last few weeks against French pension reform (namely the raising of the retirement age to 64) and is the second to significantly impact output from French refineries; Exxon is also reporting a halt to fuel loadings at its Fos Refinery. French refineries have a total of 1.4M bbd of refining capacity, which plays a critical role in regional markets. 

ICE Gasoil is the day’s biggest up-mover, rising by over 5% after a substantial climbdown that saw it shrug off the Russian seaborne product ban, which began yesterday. Unlike the crude product ban, this was not borne of evaporating confidence in the benchmark; open interest in futures and options has grown to a nine-month high. From a supply-side perspective, this is the last of the currently planned strikes in France but is expected to be the most severe as it is due to last 72 hours. This will tighten European physical markets this week and add weight to the bid for diesel cargoes from the U.S. Gulf Coast, which have fallen by over 20% from the January high despite the imminence of the Russian product embargo. 

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