The Dated Brent physical has seen a strong performance, with the physical differential stable and rangebound around the 80c/bbl region. Prompt CFD rolls have rallied, with the 24-28 March 1-week roll rising to $0.35/bbl. This comes despite being in the midst of refinery maintenance season, and the strength can be attributed to robust refinery margins, which may have spurred some refineries to delay their schedules.
The Dated market has seen good support over the month of March with the physical rising from negative levels into the 80c/bbl region, where it has been rangebound and stable for the past two weeks. Total and Trafigura did most of the heavy lifting, and following that, other participants did just enough in the physical that kept the print high. With spring refinery maintenance accounted for, physical bids from refiners, including P66 and Cepsa, indicate a healthy appetite for near-term barrels. The usually-weakest weeks are the strongest parts of the curve. Contributing to this are strong refinery margins, which provide a floor for Dated demand, and it follows that we have observed consistent hedge buying flows down the curve. The optics of the return of OPEC+ barrels for April seem to be focused on flat price, especially as the group has the optionality to delay again in the next month.
Following recent rallies, structure, including weekly rolls, have been increasingly toppish in recent days. For instance, the 24-28 Mar 1-week roll had rallied to $0.35/bbl, before correcting lower to $0.30/bbl, where we observed selling in the 1-week and 2-week rolls. The presence of hedge buying flows in late April have pressured early April structure, including buying in the 28-02 May 2-week roll by a variety of players, including funds, trade houses, refiners, and Chinese types. This is unsurprising, as the curve is cheaper in the latter regions on an implied physical differential basis, and no wonder players are hunting for value, with the front having already rallied. As we maintain a bullish view in Dated, we see good risk-reward in going long in Apr/May Dated. In addition, Apr/May DFL is primed for higher price action, especially if physical strength filters through.
A peculiar observation is the unusually large amount of buying in the Q3 DFL. Trading volumes amounted to over 10mb, where usually 150kb would count as large size. This has come from many different counterparty types, including majors, refiners, and funds. A fund and British major were on the sell-side. Similarly Q4 is seeing strong buying interest. Meanwhile, fund rolling in WTI has artificially weakened the front Brent fly, as weakness in the front WTI/Brent box filtered into Brent spreads. Another differential to look out for is the Dated/Dubai, where the prompt is at historically low levels for this time of the year, and further declines in freight rates could incentivise physical movement, and the curve is prone to an upside breakout.
