Oil hits fresh 2016 highs with gasoline, naphtha prices highest since Q4

LONDON (ICIS)–Crude oil futures hit a fresh 2016 high on Thursday following a weakness in the US dollar after the US Federal Reserve announced no changes to interest rates, and on the back of positive investor sentiment amid accelerated US output cuts.

The June Brent contract was trading at $47.23/bbl at 11:05 London time, up 5 cents from the previous day’s settlement and after having hit an intraday high of $47.47/bbl earlier in the day.

Nonetheless, further price gains were capped on Thursday by the Bank of Japan’s decision not to introduce fresh monetary stimulus, raising doubts about its ability to kickstart a sliding economy. The Japan Nikkei 225 stock market index closed the day down 3.61%. China’s key Shanghai Composite Index fell 0.27%.

The Brent front-month contract crossed the $47.00/bbl mark on Wednesday after the US Federal Reserve confirmed interest rates would remain unchanged for now, but left the door open for policy changes next month.

“In general, sentiment has turned. And yesterday’s Fed decision has probably fuelled some more of the rally,” Amrita Sen, chief oil analyst at Energy Aspects said.

The US dollar has dropped against major currencies after the Federal Reserve released a statement following a two-day monetary policy meeting. Brent crude oil futures typically trades inversely proportional to the US dollar index.

“Strong investor demand, a weaker dollar, and expectations of lower production has propelled crude oil to a new high for 2016,” said Ole Hansen, Head of Commodity Strategy at Saxo Bank in a note released late on Wednesday.

Investor sentiment in crude oil contracts is strong because of “price-supportive headlines” provided by US government data from the Energy Information Administration (EIA) on Wednesdays, which has been delivering news on the ongoing slowdown in US crude production, Hansen said.

EIA data on Wednesday 27 April revealed daily US crude production in the country fell to 8.94m barrels last week, the least since October 2014.

Meanwhile, European gasoline sentiment is bullish on the back of a spate of refinery outages – planned and unplanned – in the US Gulf Coast.

Eurobob gasoline barge prices hit a five-month high of $495/tonne FOB (free on board) ARA (Amsterdam-Rotterdam-Antwerp) late on Wednesday evening, also on the back of a sustained rally in upstream Brent crude oil futures.

Gasoline sentiment is also supported by the opening up of the transatlantic arbitrage window to the US since last week, after weeks of waiting.

Sentiment is also supported by renewed buying interest from West Africa, although sales are being hampered by Nigeria’s payment difficulties.

Naphtha prices have also picked up in line with upstream Brent crude oil futures and gasoline sales, trading at a four-month high of $395/tonne cost insurance freight northwest Europe on Wednesday evening in the open market platform.

Demand for naphtha from the European petrochemical sector continues to be robust despite a dip in cracker margins in the recent past.