In the week since our last edition of What’s Affecting Oil Prices, Brent prices rose $2.44/bbl to average $77.19/bbl. WTI prices rose $5.54/bbl to average $71.79/bbl.
Brent and WTI prices will continue to diverge in the week ahead as Brent’s rise is slowed by hopes of higher supply while WTI is supported by an outage at Suncor’s Syncrude facility.
A shutdown at the Suncor Syncrude plant appears to be playing a large part in driving the narrower Brent-WTI differential with WTI supported after light syncrude flows were reduced. The plant is expected to be offline through the end of July, forcing Midcontinent refiners to source volumes from Cushing.
When it comes to trader sentiment, one of the largest crude oil and refined product market-makers recently liquidated its trading book and closed, reportedly due to new capital requirements from European regulators. Geneva Energy Markets is one of the first large trading houses to be impacted by the Basel III requirements but more firms could be impacted, potentially removing liquidity from paper markets. Additionally margins continue to weaken, especially in Asia as more refineries exit maintenance and add to regional product supply.
Overall, markets are facing conflicting pressures in the week ahead, which, coupled with the July 4 holiday in the U.S., is likely to drive prices sideways. We expect Brent to average $78/bbl and WTI to average $73/bbl in the week ahead.
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