We're seeing a continued downturn in the motor fuels sector, which drives crude prices at this time of year. I think a lot of hopes were pinned on summer demand giving prices a boost, but we’re starting to see the Brent futures curve move closer to contango. The recent OPEC+ announcement has caused the front of the curve to move down from its backwardated position, even though we still don’t have clarity on how much of those unwound cuts for May are hitting the water. Saudi could also burn more oil domestically for example. Do they really want prices lower? Probably not. It’s possible the market is overreacting to some of the headlines. We’re also seeing US sanctioned flows continue into China. Iranian, Venezuelan, and Russian crude flows into the country hit record highs in March and April - about 2.4 million b/d in each month. Chinese inventories are high. So, despite logistical constraints, it’s still pulling in a lot of discounted barrels.
Are Russian crude exports flowing steadily to India and China?
There’s been a slight decline in total Russian exports, likely due to field maintenance and difficulty sourcing parts. India has been importing less due to compliance with US sanctions, especially on tankers, which has disrupted Urals flows. However, exports to China remain strong. ESPO blend is the more desired grade and those volumes have picked up. There was an initial adjustment period due to sanctions, but traders have largely worked around it.
Is US output on par with expectations for this year so far?
We’ve seen lower-than-expected exports from the Americas, including the US. It’s not a huge drop, but it has softened. We haven’t hit the big highs that people were expecting for this year, and that’s probably helping mitigate higher barrels coming to market. The US is also importing less crude from Venezuela due to the potential revocation of Chevron’s license. However, those volumes are being offset by higher imports from Mexico.