Macro optimism boosts the front of the curve

ICE Brent futures were boosted late in the previous session (reaching 77.4 $/b on early Friday) by a jump in inflation expectations, which led to a sharp rally in US treasury yields and equity markets. Indeed, 10-years Treasury yields reached 1.44%, a 13 basis point jump in the span of hours. Buying interest on the WTI and Brent curve continued as inflationary pressures pushed market participants to get exposure to the energy component of the CPI through crude futures. While ICE Brent prompt time spreads remained idle at 81 cents, Dec21/Dec22 spreads reached a record high of 7 $/bbl. Such backwardation on the curve was likely due to the concentration of short-term production outages (Canada, US, Low OPEC output) while the backend of the curve remained pressured by hedgers and the potential for greater availability of Iranian crude in 2022. We believe such a wide time spread will be unsustainable in the weeks to come, with the backend of the curve eventually catching up with the front when a greater number of financial players get exposure to the oil complex. Gasoil cracks in Europe continued to rise reaching 9.7 $/b at the front for ICE Gasoil cracks, as transatlantic travel bans between the US and Europe were lifted this week. Furthermore, rapidly depleting diesel and jet fuel ARA stocks helped the rebalancing of the middle distillate market.

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