The physical oil market, which had experienced a remarkable rally in recent months, is now displaying its first indications of vulnerability, raising concerns about the sustainability of the upward trend.
Crude oil prices in some of the world’s main physical markets have weakened due to a jump in freight costs and a drop in refining margins, suggesting possible demand weakness that could impact the futures market. This could lead to a fall in crude futures, which have risen in recent months. Nigeria and Angola, two of West Africa’s biggest crude exporters, have seen their crude premiums to benchmark prices come down, indicating a potential decline in demand. Additionally, physical markets in other parts of the world, such as the North Sea and the U.S., have also weakened. Refining margins have weakened worldwide, particularly for gasoline and naphtha, due to factors such as the end of the U.S. summer driving season and rising U.S. gasoline inventories. To revive demand for West African crude, premiums need to come down further or oil product prices need to rise proportionally. However, the market remains sluggish, with an excess of Nigerian and Angolan crude still available for November loadings. The jump in freight costs, following recent geopolitical events, has further impacted the market, as key freight rates for crude have increased. Refining margins have also weakened in response to higher crude prices. Overall, these developments indicate a potential slowdown in the crude oil market.