Brent Nudges $75/bbl

Oil futures were on track for $75 per barrel before a surprise build in US gasoline tanks and US dollar strength killed off market momentum. International benchmark Brent closed at $73.08/bbl Thursday, still up 56¢/bbl on the week, but down from an intra-day high of $74.96/bbl seen Wednesday. US domestic price-pin West Texas Inetrmediate finished the week 75¢/bbl higher at $71.04/bbl after suffering the same late collapse. Hopes of a post-Covid-19 bounce in oil demand have helped push oil prices to their highest in two years. But even highly vaccinated developed nations are not out of the pandemic just yet. The UK registered the highest number of new infections in four months Thursday. The country was left off the EU's "white list" of countries from which nonessential air travel is allowed when it was updated this week. The US dollar saw one of its largest-ever one-day gains against other currencies Thursday, triggering a massive sell-off in dollar-denominated oil. The US Federal Reserve has suggested that at least two interest rate hikes will be needed next year to stop the US economic recovery from fueling inflation. Gasoline took an even bigger beating after domestic tanks edged closer to an all-time high. Nymex RBOB gasoline futures have now fallen for five sessions in a row with the front-month July contract now trading at a discount to the August screen. That signals physical oversupply at a time when the US demand recovery is supposed to be focused on gasoline. European air traffic and the region’s jet fuel burn are already rising ahead of the Jul. 1 rollout of the EU Digital Covid Certificate and the inclusion of the US on the EU's "white list" of permitted countries this week. Member states are free to set their own entry requirements. European departures were already back above 50% of pre-Covid-19 2019 levels in the seven days to Jun. 17, according to network manager Eurocontrol, having risen steadily from a stubborn 65% deficit a month ago. The UK is also mulling changes to its troubled “traffic light system” to allow fully vaccinated passengers to visit the long list of "amber" countries without needing to quarantine for 10 days on their return. Pressure is mounting on the UK to follow Europe's lead in allowing travel with proof of vaccination or a negative test. The UK government is also facing legal action over how it decides which countries are allowed on its "green list." Northwest European jet cargo premiums sank back to an $18.50 per metric ton premium to front-month ICE low-sulfur gasoil (LSGO) futures, down from a $20/ton premium last week despite airline buying ahead of the restart. Brokers report a potential surge in Mideast and Asian arrivals from barely 500,000 tons this month, following widespread diversion to the US, to well over 1 million tons already seen for July. The week saw three public cargo trades plus rumors of several deals being struck outside of the window. Swiss trader Vitol sold two 30,000 ton parcels from the LR2 STI Elysees due into Le Havre before the end of the month from Ruwais to into-wing heavyweight Royal Dutch Shell. Shell paid a $20/ton premium to July LSGO futures in last Friday’s window and a $4/ton discount to Platts c.i.f. cargo mean (CCM) on Tuesday. Vitol also sold 30,000 tons on board the LR2 Zaliv Amurskiy arriving in Le Havre Jul. 6-10 from Fujairah to French oil company TotalEnergies at $1/ton under the CCM in Tuesday’s window. UK buying helped drain jet tanks in Amsterdam-Rotterdam-Antwerp last week, according to Insights Global. Stocks are still above 1 million tons for the fourth week in a row, and 18% above year-earlier levels. US jet fuel markets are poised for a busy summer travel season. Airlines are adding more flights to Europe in anticipation of the wider opening of the trans-Atlantic corridor. Those long-haul services have already provided a lift for US jet fuel demand, which climbed by 226,000 barrels per day to 1.26 million b/d in the week ended Jun. 11. Vibrant domestic travel pushed daily passenger numbers above 1.8 million in mid-July, but that's still well below the 2.6 million seen in June 2019 due to limited international services. Refiners are preparing to supply more fuels as vaccine rollouts, stimulus measures and economic recovery unleash pent-up demand for travel by road and air. Utilization rates reached 93% of capacity in the week ended Jun. 11, their highest level in more than a year. Strong margins for gasoline and diesel are driving higher crude throughput, since jet fuel returns are expected to remain below pre-Covid-19 levels until international travel picks up. Jet output also climbed to a year-long high of 1.37 million and another 149,000 b/d of imported jet fuel reached US ports, outstripping prompt demand. More supply is ending up in storage, with tanks jumping by 1.2 million to 45.2 million barrels or 11% higher than year-ago levels. Stronger jet spreads offset a 4¢/gallon drop in diesel futures to put outright jet quotes in the $1.89-$1.91 per gallon range. But jet differentials still show steep discounts to diesel futures. Gulf Coast barrels were pegged at 23¢/gallon below the July screen versus 29¢ last week. Los Angeles differentials climbed by 3¢/gallon to a 25¢ discount. Chicago markets have been stronger than other regions since the February winter storm restricted pipeline deliveries, with spreads at 15¢ below July futures. Asian jet markets firmed up as air traffic rose in two of the continent’s largest regional markets. The benchmark Singapore differential climbed by 8¢/bbl from a week ago to a discount of 33¢/bbl to Singapore quotes on Jun. 17. Arbitrage flows of jet from East of Suez to west of the canal rose by 15,000 tons to 109,000 tons in the week starting Jun. 14, according to data intelligence company Kpler. The volumes originated from Saudi Arabia and are expected to arrive in Europe from Jun. 22 through Jul. 4, Kpler added. More regional flights are boosting prompt jet demand. Scheduled airline capacity in the week of Jun. 14 rose by 1.4% in Northeast Asia, the world’s largest regional aviation market, according to aviation data analysis firm OAG. Scheduled capacity in the same week jumped by 9% in South Asia due to more Indian services. Indian capacity spiked by 12.6% from the previous week, OAG noted. Domestic flights accounted for 93% of Indian airline operations. But capacity in two of Asia’s largest regional aviation markets remain well below pre-pandemic rates, with Southeast Asian levels off by 68% and South Asian capacity down by 50% versus January 2020. European Quarterly Jet Fuel Swaps Quotes (Bid/Offer Range in $/ton, c.i.f. NWE) Quarter Chg. Jun 18 Jun 11 Q3'21 -4.25 611.25 - 612.25 615.50 - 616.50 Q4'21 -1.75 615.75 - 616.75 617.50 - 618.50 Q1'22 -1.75 615.00 - 616.50 617.00 - 618.00 Q2'22 -1.50 613.25 - 614.75 615.00 - 616.00 Prices are live for midday. Source: FCStone