The War Premium Takes a Day Off
Energy started the week with a substantial correction, concentrated in middle distillates rather than crude. September ICE gasoil fell about 5.2% to $1,244/mt while Brent lost roughly 2.3%. September/December gasoil backwardation dropped about 15% to $124.50/mt and September/January fell about 14% to $160.25/mt. The heating-oil crack fell below $100/bbl for the first time in ten days, trading near $94/bbl. The market has clearly reduced the probability assigned to an immediate return to kinetic war and removed part of the geopolitical premium. Yet $94/bbl for the heating-oil crack and $124.50/mt Sep/Dec backwardation remain extreme measures of distillate scarcity. My prognostic has not changed. The distillate shortage is not over. I still expect renewed upside into early September, with ICE gasoil at risk of retesting the $1,500 to $1,550/mt area if physical supply fails to improve.
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