Global Crack Margins Have Narrowed
Demand fundamentals have improved consistently in the month of April, with reports that Chinese bound supertankers have reached the highest levels in over two years combining with very strong Indian fuel consumption and early chatter on strong summer driving demand in the US and Europe. Furthermore, solid fundamental demand evidence is partially confirmed by a 17% decline last week in global floating Crude storage. However, crude oil prices today are not showing a favorable reaction to a positive overall environment. Perhaps the market remains overbought and in need of more sideways consolidation after the extremely strong start to the month of April. It should be noted that global crack margins have narrowed potentially signaling recent crude price gains have discouraged refiner buying.
While the bias in crude oil prices looks to remain up and US gasoline supply and demand fundamentals are the most supportive in the petroleum complex, the market is amid a seasonal demand lull with Russia and China currently in aggressive fuel export modes. Nonetheless, as can be verified in our website charts from weekly EIA data, gasoline seasonal demand should rise consistently over the next several months. Furthermore, with EIA gasoline stocks at a 10.8-million-barrel deficit to year ago levels and recent implied gasoline demand readings showing summer like consumption gasoline should hold fundamental support near last week’s lows ($2.7088). Furthermore, gasoline technical signals are not overbought yet with the most recent positioning report showing a very modest net long despite the market’s explosion over the last 30 days.
The bear camp is likely surprised with this morning’s higher high given news that Ukraine is beginning to refill underground storage as that news verifies Russian supply flow is meeting Western Europe continental demand. We suspect gas is benefiting from the presidential move to allow Alaskan gas exports and to a lesser degree from a slight improvement in global economic psychology. Furthermore, given the strong rejection of the new low Friday and the slow declines recently, the bear camp appears to be losing control. In fact, the lower lows at the end of the week saw volume and open interest decline.
Interested in more futures markets? Explore our Market Dashboards here.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.