Sweet/Sour Revisited And European Gasoil Expiry

Revisiting sweet sour spreads differentials developments. So the press has not mentioned OPEC for a while and they have seemingly been cutting production in sour crude and raising their OSP(official selling price) to reflect the cut in supply. This is one factor that has kept the sweet sour differential in check. Brent-Dubai spreads, as per chart below, tends to be a very good gauge of sweet sour crude differential. This spread also tends to show a good correlation with market direction. However, due to above mentioned reason and others (sour crude refineries coming back, strong fuel oil in asia etc), this spread has remain at its tightest for a while.

This just shows that the excess crude in the market is sweet crude, and that even when Gasoline cracks are making sweet margins look good, we are unable to clear up sweet crude inventories. Indirectly, SFOT suspect that at some point(sooner than later), this equity/oil correlation has to give way to the large amount of sweet crude that is built up and has to be absorbed. Hence, momentum maybe to stay long oil, a top may be near and he still favours short position in CLZ10, targetting mid 60s at least.

Brent-Dubai spread and CO1

On another matter, European gasoil contract is expiring tomorrow. What is interesting is that that the spread QSk9/QSM9 has been strengthening steadily into the expiry tomorrow. Hearing from physical sources, Gasoline exports from Europe to Gulf Persian, US and Africa has created some storgage space which is in a premium these days. This has driven prompt end buying for the likes of Gasoil in europe as the contango further out still makes it a good arbitrage to store. Given a physical delivery, perhaps length of this contract will look to take bigger delivery of gasoil this time round. The easing up of some storage facilities have also seen Jet moving from worldwide location to Europe in the hope of finding a home and further illustrates that in the physcial world, the only active trading taking place are trades to do with the contango and storage.

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