On spreads, however, micro fundamentals of the oil market come more into play. Seasonally, we’ve softened a bit on spreads, but interestingly, we’ve still managed to remain backwardated across the three main benchmarks. And that’s despite pricing what is normally the softest period for the market - with refinery turnarounds and oversupply concerns for light sweet crude, especially Brent and WTI. Sour markets are a lot tighter.
Are US tariffs impacting US domestic production at all?
There are a lot of concerns about whether US shale production will be able to grow, given the low-price environment. Even things like the cost of materials, steel, for example, have already increased significantly with the tariffs in place. There’s also the constant geological issue in the US; the best acreage has been drawn down, and it’s a lot more costly to develop tier-two and tier-three acreage.
Any other areas of supply that could be challenged?
Those are more geopolitically driven, such as production in Iran and Venezuela. We do expect significant production losses in Iran in the coming months as the US tightens sanctions. We saw last week how they targeted a Chinese teapot refinery directly for the first time; that’s a telling sign. We’re hearing that Chinese buyers are getting very concerned about purchasing Iranian volumes and so are looking for alternatives.
Outlook for refined products in Q2?
There may be a bit more upside potential in the products market compared to crude in the coming months. Taking gasoline as an example, the big question in the Atlantic Basin is whether the Dangote refinery can operate at full capacity - that would bring a lot of new gasoline supply to the market and significantly change trade flows. But we know there have been ongoing issues, with both unplanned and planned outages. And if you look at FCC cracks or secondary unit cracks, which are very important for gasoline, they are very low. If they remain at these levels, refiners wouldn’t be incentivized to ramp up gasoline production heading into summer, which is typically when demand peaks, especially in the Western Hemisphere.