Reports that 36 million barrels of crude were added to the balance sheet is “a bit nuts,” ICAP’s Scott Shelton said. There’s plenty of capacity to export once terminals are restarted and extreme weakness in WTI/Brent has opened arbs to export crude out of the US.
“WTI/Brent is up 30 cents in the front end of the market, but that is a function of weak Brent spreads more than strong WTI,” he said. “While Midwest grades weakened with Midland, USG grades held pretty well, which is surprising due to massive losses in refining capacity. I think it just underscores the power of the export market as we are trading grades on a forward basis.”
For products, it’s not as easy as it used to be to rally US margins and RBOB/EBOB and HO/GO to get new supply via imports as the market’s becoming more dependent on the US for production, Shelton said. Gas in Asian and Europe has moved to new highs on a margin basis and there are “corrective ways to offset the crude demand losses which makes me think that WTI/Brent is too weak, as are front end WTI spreads.”
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