The Dated market has retreated from the bullish hysteria since our last report on 1 April. There, intense stop-out flows saw decade-high trading volumes in the DFL. While the physical was more quiet, the futures was a completely different beast, and we have covered the ‘Liberation Day’ fuelled sell-off extensively elsewhere. Futures weakness was at odds with Dated strength, and physical differentials above $1/bbl is a testament to that. It is now a WTI story, with Midland setting the curve. Gunvor was the preeminent bullish player, taking May expiry cargos and lifting WTI Midland cargos in the window. Recently, Total and BP were also buyers. However, the bullish sentiment has waned, with US-based sellers, like Exxon, entering the fray. There is better selling in the front of the curve by multiple players, especially on 14 April, and it remains to be seen how much lower they can push down the diffs, if they continue.
There is a clear bifurcation of flows between the front and deferred weekly Dated structure. Late April and early May are seeing selling, while there is better buying interest from the backend of May into June. The front does not have much more upside, which implies physical differentials over $1/bbl, so players have trimmed their length there. The 6-9 May 3-week roll saw strong selling interest as players sought to reduce their length in May rolls. However, the pullback is more aligned with a correction than a reversal in structure and sentiment. We identified no axed seller, and the buying appetite is focused on the backend of May. There’s more interest there, especially with implied physical diffs relatively cheap, which informs our trade idea to go long in the 19-23 May vs Cal June. Players are rolling their length into the back, and there is more risk-reward here. For this reason, we are also more bullish in Brent structure, with the weakness in futures giving space for a Dated-driven rally.
Maintenance for Ekofisk affects June-loading barrels, and opportunistic bulls could take advantage of this. However, this depends on how much WTI Midland arrives in Europe. WTI spreads have been lagging Brent, and boxes have weakened. The DFL and refinery margins have rallied in tandem, presenting a constructive story for the market and showing that flat price weakness was sentiment-driven. The arb into Asia is shut, so further strength is dependent on local demand.
