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ICE Futures Europe - Monthly Oil Report
Source: IntercontinentalExchange Inc. (ICE)

ICE Brent Futures:

Front-month ICE Brent crude futures dropped to below $100/bbl at the start of June, continuing the sell-off seen in May, falling to an intra-month low settlement of $89.23/bbl on 21 June. A high perceived supply of crude oil and a weakening demand outlook contributed to the bearish sentiment, analysts noted. OPEC, according to the International Energy Agency, pumped 31.9 million bpd of crude in May, up 1.4 million bpd on December 2011, while global oil demand fell from 89.1 million bpd in Q4 2011 to 88.5 million bpd in Q2 2012 (although demand in the second quarter is typically lower due to refinery maintenance). Along with an increase in non-OPEC supply, this imbalance will likely lead to stock builds, which are in evidence, particularly in the US according to the Energy Information Administration. On the macroeconomic side of things, a worsening European economic picture is also bearish on oil prices, market watchers said, due to the perceived negative impact on oil demand.

ICE WTI Futures:

ICE WTI Futures prices fell in June to an intra-month low of $77.69/bbl 28 June. Despite the US economy currently faring better than that of Europe, according to economic analysts, the persistent increase in US light tight oil production and subsequent building of stocks weighed on prices. Crude oil stocks at Cushing, Oklahoma averaged 47.6 million bbls for most of June, up 1.9 million bbls from May’s average and a significant 9.6 million bbls above the figure for June 2011. The contango at the front of the futures curve remained stable, averaging minus 34 cents/bbl in June, unchanged from May. Like Brent, front-month WTI reversed most of its earlier falls on the final day of June, a point of potential portfolio repositioning, but also just prior to the formal start of the EU embargo on Iranian imports.

ICE WTI-Brent Spread:

The volatility in outright prices impacted strongly on the WTI-Brent spread which narrowed from -$15.62/bbl at the start of June to -$11.79/bbl and finished the month at -$13.05/bbl. Contrasting news on an economic and fundamental level independently affected both sides of the Atlantic crude arbitrage spread. European economic woes impacted Brent prices while WTI prices are still being influenced by strong crude stock builds at Cushing, despite the start-up of the 150,000 bpd Seaway pipeline.

ICE Gasoil Futures:

ICE Gasoil Futures held up relatively during the overall oil sell-off in June, as seen in a stronger gasoil crack to Brent. On an outright basis, front-month Gasoil fell $26/mt ($3.49/bbl) through the month, excluding 29 June when the market rallied. The front-month Gasoil crack rose during the same period from $14.85/bbl to an intra-month high of $19/bbl. Preliminary indications showed a pick-up in heating oil demand in mainland Europe. News reports suggest that domestic users of heating oil in Germany were buying the fuel to fill their tanks ahead of the winter, after lower gasoil prices in May.

ICE Low Sulphur Gasoil Futures:

Front-month Low Sulphur Gasoil Futures prices fell and like Gasoil, the crack to Brent widened, to over $21/bbl. Higher diesel consumption during the European summer months has contributed to the relative strength and the wider cracks have provided refiners with healthier margins. The demand for prompt diesel has been reflected in the widening backwardation of the front-time spread to $6/mt at the end of June from around $0.50/mt mid-month.