While outright values suggest that the physical market is tight, whether or not this translates to a bullish market is a subjective matter. Notional values are high, but CFD rolls continue to roll down weekly. The 21-25 July 1-week roll is down from $0.50 to $0.10/bbl, and the 28-01 Aug 1-week roll is down from $0.45 to $0.30/bbl. The culprit? A relentlessly strong physical market. The market is implying forward differentials at stratospherically high levels, so even if the physical strengthens, it is insufficient, weakening the CFD rolls. As it stands, early August weeks are pricing above $1/bbl. The 21 July physical window was constructive, with the physical rising from $0.69 to $0.77/bbl, but there are still ways to go.
The fundamental picture remains supportive amid strong refinery margins and sustained strength in gasoil cracks. The strength in August structure has been driven by refinery buying flows in the paper, reflecting the high demand expectations for this period. The 4-8 and 11-15 Aug 1-week rolls are supported above $0.40/bbl, while the Aug/Sep’25 DFL roll is above $0.60/bbl, a level that it has maintained since mid-July. With Brent spreads weakening and Dated-to-Lead correcting lower, this is a good opportunity for longs to enter at lower levels. This informs our trade ideas for the August CFDs, especially as we did not see axed selling. All it takes is for a major physical player to lift cargos, which will help the physical differential reach the higher implied levels.
However, these high implied differentials present a double-edged sword, with the market possibly losing patience if a bullish player does not come out. Participants are buying rolls that imply $1.30 to $1.40/bbl differentials, so CFD rolls weakening would be a sore disappointment for some. Chinese demand continues, with Unipec bidding for Brent and Forties in the 21 July window. Cargos are being booked out of the North Sea, with clips of the Sep/Oct’25 Brent futures EFP roll booked, translating to at least 2 VLCCs worth of oil. Meanwhile, WTI Midland landings for August are expected to be slightly lower, reinforcing prompt tightness. All in all, there is a lot of desire for the market to go higher; it now depends on the physical appetite. We do expect Brent futures spreads to strengthen into pricing, but if this bullish sentiment does not translate into a stronger physical, then the market is quite vulnerable to a bearish correction. Perhaps, this is Dated’s last chance.
