The ORB moved up again in May to its highest value this year, supported by a continuation of the previous month’s bullish factors. A pickup in crude oil demand, healthy refined product markets and US crude inventory drawdowns were key elements supporting the market. Ongoing geopolitical turmoil and a weaker US dollar also helped fuel oil futures for underlying physical benchmarks.
On a monthly basis, the OPEC Reference Basket was up $4.86 or 8.5% at $62.16/b on average. Meanwhile, compared with a year ago, the ORB value continued to lag at $54.06/b versus its $104.79/b year-to-date value in 2014.
Shadowing the major oil benchmarks, all ORB component values improved by at least 7% in May. North Sea Dated Brent, Dubai and US light sweet marker WTI were up by $4.82/b, $4.99/b and $4.85/b, respectively, over the previous month. Meanwhile, despite healthy European refining margins and higher refinery runs, Brent-related light sweet component differentials to the benchmark were under pressure over the month amid lingering oversupply in the Atlantic Basin.
A string of Asian tenders were not enough to absorb the surplus of West African crude oil as some of these requests were met with oil currently in storage in Asia rather than from new purchases. A widening in Brent's premium to Dubai crude to five-month highs, as well as high freight rates, made arbitrage to Asia more difficult, further complicating seller efforts to clear the overhang.
On the other hand, Middle East crude differentials stayed firm most of the month, supported by robust demand on the back of good refining margins which were boosted by strength in gasoline and naphtha cracks in the Asia-Pacific region. The market was also underpinned by a sense of tighter supply for heavy grades. However, supply rose, particularly for lighter grades, as a narrowing contango market forced traders to release oil from storage. Latin heavy sour components gained the most for the second consecutive month, supported by medium sour improvements amid planned production platform maintenance work in the Mars crude system, as well as expectations of tighter Alaska’s North Slope supplies.
Brent-related African light sweet Basket components from the north and west, including Saharan Blend, Es Sider, Girassol and Bonny Light, increased $4.56 or 7.6% to $64.54/b in May. Middle Eastern spot components and multi-destination grades improved $4.64 and $4.94 to $64.72/b and $61.33/b, respectively. For the Latin American ORB components, Merey was up $5.60 or 11.3% while Oriente improved $5.31 or 10.1%. On 9 June, the OPEC Reference Basket stood at $60.27/b.