Energy
Tightness in the refined products market continues to support the oil market. ICE Brent managed to eke out a gain of a little under 1% last week, which saw it settle above US$112/bbl. But despite the increasingly tight US gasoline market, speculators have been reluctant to jump into RBOB gasoline. The speculative net long in RBOB increased by just 4,080 lots over the last reporting week to 60,557 lots as of last Tuesday. This is still some distance from the slightly more than 80k lots seen back in February and is significantly below the record net long of around 132k lots seen back in 2018. This could leave some with the view that speculators have plenty of room to push the gasoline market even higher. However, as we have seen across the commodities complex in recent months, there is limited appetite, not just from investors, but market participants in general. This is evident when looking at the aggregate open interest in gasoline, which has been at its lowest levels in recent months since 2014.
Speculative positioning in ICE Brent also continues to be fairly muted. Speculators increased their net long in ICE Brent by 23,801 lots over the last reporting week to 184,433 lots. This net long is well below levels seen over much of 2021, and significantly lower than the record net long of around 632k lots seen back in 2018. This arises despite the oil market being much tighter now than it was back in 2018.
The higher oil prices we are seeing at the moment should help to alleviate the tightness in the market, through demand destruction in the near term and stronger supply growth in the medium to long term. Already we have seen demand growth forecasts for 2022 revised down significantly due to China’s Covid related lockdowns and the higher price environment. However, steps taken by governments – such as cutting fuel taxes and increasing fuel subsidies –  make it more challenging for the market to resolve its current tightness. Over the weekend, the Indian government announced that it would be cutting retail taxes on both gasoline and diesel by INR8/litre and INR6/litre respectively in a bid to try tame inflation.
Finland saw its gas flows from Gazprom shut off over the weekend due to its refusal to pay for Russian gas in either roubles or by opening an account at Gazprombank which would allow euros or dollars to be converted to roubles. The cut off in supply was expected. And whilst Finland sources almost all of its natural gas from Russia, natural gas only makes up around 5% of Finnish energy consumption. Given the stoppage of Russian gas flows through the entry point in Imatra, Finland will source gas through the Balticconnector instead (pipeline connection between Finland and Estonia). Finland is the third EU country to see Russian gas flows halted, with Poland and Bulgaria flows shut off last month.
