Prices re­main in nar­row band

Arab News - - Business News - Faisal Faeq

Brent crude de­clined to $41.02 per bar­rel last week as WTI also re­treated to $38.49 per bar­rel. Both grades were down by about a dol­lar.

On a monthly ba­sis, Brent has been mov­ing in a nar­row range be­tween $38 and $42 per bar­rel since the end of May.

This is a healthy sign both for the oil mar­ket and the wider global econ­omy, es­pe­cially given the up­heaval caused by the pan­demic and the re­cent pickup in cases across some ma­jor economies.

The slight drop in oil prices might be ex­plained by the record spike in COVID-19 cases and the in­crease in global oil in­ven­to­ries. The huge glut re­mained in oil and re­fined pe­tro­leum prod­uct in­ven­to­ries on­shore and off­shore in idled tankers, de­spite some news about such float­ing stor­age vol­umes start­ing to shrink.

It is worth re­mem­ber­ing that the record out­put cuts un­der­taken by OPEC+ were not in­tended to pro­vide a short-term boost for prices but rather a medium-term im­prove­ment for mar­ket bal­ance. Al­though oil de­mand is im­prov­ing in most coun­tries, this re­cov­ery is get­ting more selec­tive in terms of de­mand for re­fined pe­tro­leum prod­ucts. Gaso­line con­sump­tion is ris­ing as economies emerge from lock­down, but the un­even pace of the re­bound has cre­ated chal­lenges for re­finer­ies seek­ing to an­tic­i­pate de­mand. There has, for ex­am­ple, been a shift from diesel to gaso­line as peo­ple are slow to re­turn to pub­lic trans­port. This change in re­fin­ing be­hav­ior will af­fect the re­fin­ing mar­gins for other prod­ucts such as jet kerosene fuel.

Jet fuel con­sump­tion is still down by al­most half com­pared with the pre-pan­demic era. Now re­fin­ers need to cope with a much stronger re­bound in gaso­line de­mand com­pared with diesel and jet fuel. This re­quires a re­con­fig­u­ra­tion of re­fin­ing pro­grams to be able to shift the yield to­ward more light dis­til­lates and less mid­dle dis­til­lates.

Faisal Faeq is an en­ergy and oil mar­ket­ing adviser. He was for­merly with OPEC and Saudi Aramco.

Twit­ter:@faisal­faeq

Oil de­mand is im­prov­ing, but the un­even pace of the re­bound has cre­ated chal­lenges.

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