Very usefull links


News links




Dow Jones

Oil price



Views and News





Investors see big oil moving up, but physical markets suggest caution


By Devika Krishna Kumar, Libby George, Florence Tan

Petroleumworld 05 15 2018

Oil futures prices have soared past three-year highs, OPEC's deal has cut millions of barrels of inventory worldwide and investors are betting in record numbers that prices could rocket past $80 and even hit $90 a barrel this year.

But physical markets for oil shipments tell a different story. Spot crude prices are at their steepest discounts to futures prices in years due to weak demand from refiners in China and a backlog of cargoes in Europe. Sellers are struggling to find buyers for West African, Russian and Kazakh cargoes, while pipeline bottlenecks trap supply in west Texas and Canada.

The divergence is notable because traditionally, physical markets are viewed as a better gauge of short-term fundamentals. Crude traders who peddle cargoes to refineries worldwide say speculators are on shaky ground as they drive futures markets above $70 a barrel, their highest levels for three-and-a-half years, on concerns about tighter supply from Venezuela and the potential impact of U.S. sanctions on supply from Iran.

Investors have piled millions of dollars in record wagers in the options market, betting on a further rally on the back of rising geopolitical tensions, particularly in Iran, Saudi Arabia and Venezuela, and the global decline in supply.

“Guys who are trading futures have a view that draws are coming and big draws are coming,” a U.S.-based crude trader at a global commodity merchant said, adding that demand could ramp up as global refinery maintenance ends.

“Over the next few weeks, we should start to see markets globally clean up, but if that doesn't happen, I think we could be in trouble.”


Brent LCOc1, the benchmark on which two-thirds of the world's oil is priced, has surpassed $78 a barrel, the highest since November 2014. U.S. crude futures CLc1 hit a high just short of $72.

Inventories in the developed world are now just 9 million barrels above the five-year average, down from 340 million barrels above the average in January 2017, after supply cuts by the Organization of the Petroleum Exporting Countries and other producers, including Russia.

In the last few weeks, expectations that U.S. President Donald Trump would withdraw from the Iran nuclear agreement added to bullishness. Following Trump's announcement making good on that threat last week, prices surged further. Analysts estimate anywhere from 200,000 to 1 million bpd could be cut from global exports next year.

“Any reduction in Iranian supply will likely exacerbate market deficits, suggesting upward pressure on pricing,” wrote Greg Sharenow, PIMCO commodities portfolio manager, which sees oil surpassing $80 in the short term.

In the weeks before Trump's decision, hedge funds and others piled a record number of bets into bullish crude oil options. Traders currently hold a record 21.3 million barrels worth of options that pay off if the December Brent contract hits $90 by late October LCO9000L8. Bets that U.S. crude will hit $85 a barrel CL850G8 by mid-June are currently at a record above 14,000 contracts.

These bets are being made due to strong demand, not just fear of political destabilization, said Scott Shelton, energy futures broker with ICAP in Durham, North Carolina.

“The bigger picture of demand keeping up with much more important,” Shelton said.


Those on the front lines of the physical market are not convinced. Traders say the surge in U.S. exports to more than 2 million bpd has saturated some markets, leaving benchmark prices ripe for a correction.

“There is a huge disconnect between futures and fundamentals,” a trader with a Chinese independent refiner said. “I won't be surprised if prices correct by $20 a barrel.”

Increased U.S. competition has dented sales of oil from Nigeria and Azerbaijan, which produce similar quality oil and compete for buyers in Europe and Latin America.

Physical prices have sunk even as benchmarks on which they are based stay buoyant. The strength of Brent crude, now trading at nearly $7 above U.S. futures WTCLc1-LCOc1, and $4 above Dubai, DUB-EFS-1M has made it hard to find buyers for grades priced off Brent.

Russian Urals hit a seven-year discount against dated Brent BFO-URL-NWE while Kazakh CPC Blend BFO-CPC crashed to its weakest since mid-2012 this month.

Separately, shipments of West African crude to Asia hit a five-month low in April due to a backlog at Chinese ports.  

Clogged pipelines have hit key U.S. oil grades, including in west Texas WTC-WTM WTC-WTS, where the discount to U.S. crude is near its widest in three years.

Some are confident the world's refineries will gobble up these barrels when they finish seasonal maintenance. About 10 percent of China's refining capacity is expected to be offline through June.

“For the last three, four, five months we've seen high turnarounds globally,” a U.S. crude trader said, referencing maintenance works.

“Once you get past that, all of a sudden (you're) looking at 3 million barrels per day of fresh crude consumption.”

But whether that is enough to support Brent at $80 and above is yet to be seen.

“I think it's touch and go,” he added.

Hit your target - Advertise with Us

Story by Devika Krishna Kumar in New York, Libby George in London and Florence Tan in Singapore; Additional reporting by Ayenat Mersie; Editing by Lisa Shumaker from Reuters. /
05 14 2018

We invite all our readers to share with us
their views and comments about this article.

Write to

By using this link, you agree to allow PW
to publish your comments on our letters page.

Any question or suggestions,
please write to:

Best Viewed with IE 5.01+ Windows NT 4.0, '95,
'98,ME,XP, Vista, Windows 7,8,10 +/ 800x600 pixels

November 13 - 15, 2018.

Gubkin University, Moscow
SPE Student Chapter












Editor & Publisher:Elio Ohep/
Contact Email:

CopyRight © 1999-2016, Paul Ohep F. - All Rights Reserved. Legal Information

PW in Top 100 Energy Sites

CopyRight©1999-2017, Petroleumworld ™  / Elio Ohep - All rights reservedThis site is a public free site and it contains copyrighted material the use of which has not always been specifically authorized by the copyright owner.We are making such material available in our efforts to advance understanding of business, environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have chosen to view the included information for research, information, and educational purposes. For more information go to: If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission fromPetroleumworld or the copyright owner of the material.