Energy

Oil finished last week off strongly. ICE Brent settled above US$119/bbl, which took its gains for the week to more than 6%. Tightness in the refined products market continues to prove supportive for crude oil prices, as healthy refinery margins should see refiners maximize their run rates. Last week, there were also reports that the US administration was talking to the domestic industry to see whether they could bring back shut refining capacity in order to help improve refined product supply.

Over the weekend, EU diplomats failed to come to an agreement on the EU’s proposed ban on Russian oil ahead of a 2-day summit with EU leaders starting today. There are reports that despite concessions provided to Hungary, which would exclude oil that flows through the Druzhba pipeline from the ban, Hungary is still blocking the agreement. Hungary wants EU funding in order to help them increase pipeline capacity from Croatia and also for refiners to be able to switch to alternative crude. Diplomats are expected to meet ahead of the summit today, however, it’s unlikely that members come to an agreement when they meet, given that talks have not progressed enough.  

The latest positioning data show that speculators increased their net long positions in ICE Brent by 12,639 lots over the last reporting week, which left them with a net long of 197,072 lots. This is the largest position that speculators have held since early March. However, it is still some distance from the roughly 333k lots they held back in October last year. The move over the week was driven predominantly by fresh longs, with the gross long increasing by 8,831 lots. Given the move that we have seen in the market since last Tuesday, the current net-long position is likely to be even larger.

OPEC+ are set to meet on Thursday to discuss their production policy for July. We continue to expect no change in the group’s approach and expect confirmation that they will increase output levels by a little over 400Mbbls/d over the month. However, as we have seen for several months now, it is unlikely that members will produce anywhere near their agreed output levels.