Brent prices averaged $64.95/bbl last week, gaining strength at the end of the week. This week prices will likely remain range-bound, averaging $65/bbl with the Brent-WTI differential remaining about $3.50/bbl.
There is minimal news on the geopolitical front that is likely to influence prices this week. While perennial issues such as the decline in Venezuela and unrest in Libya remain, we do not expect them to become more impactful in the short term.
Fundamental and sentiment-related drivers continue to have more impact on crude oil prices. The dollar moved sideways last week as crude oil rose slightly. Crude oil will likely remain only marginally influenced by DXY in the week ahead.
ICE Brent and Nymex WTI managed money net positioning both fell slightly last week. Short-selling also indicates that producer level hedging has ticked up in recent weeks as producers take full advantage of recently high prices before a possible correction. Trader sentiment remains generally positive despite recent increases in U.S. production.
According to Baker Hughes, the U.S. rig count fell for the first time in six weeks last week. Such fluctuations in rig numbers are common and we do not believe this is the start of a trend. We continue to expect that the impact on production of these rising rigs will likely start to be seen in May. Libya has been having trouble keeping fields online in recent weeks due to protests, which has reduced production slightly. Evidence of renewed global oversupply continues to pose the greatest threat to prices.
U.S. consumption of petroleum products remains generally at or above seasonal averages in all products except fuel oil.
Global refining margins fell across the board last week with the largest decline seen on the U.S. Gulf Coast. Declines in margins appear to be slowing, and we could even see some strengthening in margins in the weeks ahead as Asian refinery maintenance is underway. However, in the meantime, margins are not robust enough to incentivize additional runs of a level likely to support crude.
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