Oil markets rallied yesterday with ICE Brent settling a little more than 3% higher on the day, which saw the market closing well above US$81/bbl. The catalyst for the move appears to be Israel refusing to agree on a cease-fire with Hamas. There had been suggestions, or at least hope, that we could see a cease-fire, which could have helped to de-escalate the situation. But clearly, the concern now is we see further escalation.
Further support for crude oil prices came from the broader strength we are seeing in refinery margins. Refined product draws in the US over the last week have been supportive for margins, while Red Sea disruptions and refinery outages also continue to provide support to refined product markets, particularly middle distillates.
The latest data from Insights Global show that refined product inventories in the ARA region fell by 106kt last week to 5.21mt. These declines were driven by gasoil, fuel oil and jet fuel, which fell by 71kt, 79kt and 54kt respectively. Middle distillate stocks in Europe remain tight, which suggests that cracks will remain well supported at least in the short term.
US natural gas prices came under pressure yesterday with front-month Henry Hub futures settling more than 2.5% lower on the day. This weakness has continued in early morning trading today, which sees the market trading comfortably below US$2/MMBtu. EIA numbers yesterday showed that US natural gas storage fell by just 75bcf over the last week, which was well below the 5-year average draw of 193bcf for this time of year. US gas storage remains comfortable at 10.6% above the 5-year average.
