Dated Brent above $100/b for the first time since September 2014

S&P Global Platts assessed the Dated Brent benchmark Feb. 16 at $100.795/b, up $3.14/b day on day, amid continued demand for light sweet crude and ongoing uncertainty surrounding a possible Russian invasion of Ukraine.

This is the highest the benchmark has been assessed since Sept. 4, 2014, when it was assessed at $101.195/b.

Dated Brent was higher Feb. 16 as part of a broader petroleum price rally amid tensions between Russia and the West over Ukraine.

Prices had fallen Feb. 15 after an announcement by the Russian Ministry of Defense of a limited withdrawal of Russian troops from near the Ukrainian border. However, Western nations have continued to point out that the threat of conflict has yet to diminish, with NATO Secretary-General Jens Stoltenberg warning Feb. 16 that Russia continues to increase troop numbers on the border.

US President Joe Biden has vowed to impose "swift and severe consequences" on Russia if it attacks Ukraine, including financial sanctions to restrict foreign capital and export controls to block US software and technologies.

Light sweet crude has been in high demand across Europe, and indeed globally, amid a rebound in global refined products demand, specifically for low sulfur distillates.

"Products markets are still strong," a North Sea trader said. "Overall, the market is solid."

North Sea crude in particular has seen strong demand from European refiners as the sustained backwardated structure means end-users look to local grades where possible.

Spot North Sea forties crude, for instance, was assessed by Platts at a $3.29/b premium to Dated Brent Feb. 16. While that was down 1 cent on the day, it was up from a 26 cents/b discount Jan. 3, reflecting strong prompt demand for physical crude.

Likewise, over the same period Nigerian Bonny Light sweet crude has risen to a $1.85/b premium to Dated Brent from a 40 cents/b premium, while US Bakken crude has risen to a $1.80/b premium to WTI from a 40 cents/b discount.

Platts assessed the backwardation between Feb. 21-25 and March 21-25 Brent Contracts for Difference weeks at $3.50/b Feb. 16. This compares to a $2.38/b backwardation assessed Feb. 1.

And the NYMEX WTI backwardation has widened as well, with the front-month premium to the 12th-month contract settling at $13.61/b Feb. 15, compared to $5.53/b Jan. 3.

Demand for gasoline and diesel are already above 2019 levels as each successive wave of the coronavirus has less of an impact on economic activity. This demand rebound has been highlighted by major refiners during their recent fourth quarter and 2021 earnings calls.

And "from a demand perspective, gasoline, diesel and jet inventories are well below 2019 levels in terms of days of forward cover," PBF Energy CEO Tom Nimbley said on a Feb. 10 Q4 results call.

And lagging jet demand is on the road to recovery as more countries open borders, supporting higher refining margins.

Cracking margins for Bonny Light on the US Atlantic Coast have averaged $13.79/b so far in the first quarter, up from $7.75/b in Q1 2021, S&P Global Platts Analytics data shows. Forties cracking margins in Northwest Europe have averaged $4.62/b in the first quarter, up from a $1.30/b average in Q1 2021.

But global refinery capacity has tightened because of closures during the coronavirus pandemic, with most US refiners estimating about 4.5 million b/d of capacity was eliminated.

OPEC+ spare capacity tightens

Crude supply also remains limited as OPEC+ spare capacity has tightened, sanctions have reduced exports from Iran and Venezuela, and US producers are still showing restraint, even with global crude prices nearing $100/b.

The International Energy Agency on Feb. 16 called again on OPEC and its allies to fulfill its output targets, while the US' top energy diplomat said that oil producers need to ensure adequate supplies.

But the 23-country OPEC+ coalition have been pumping well below their production targets for many months. Platts estimates the OPEC+ shortfall at 600,000 b/d in January.

Several OPEC+ countries have struggled to increase production, either due to underinvestment, civil unrest or western sanctions. That has left the bulk of the world's spare production capacity in the hands of Saudi Arabia and the UAE, both of whom have shown no inclination to pump beyond their quotas.

The US-Iran talks remain far from certain to reach a deal for restarting nuclear controls and removing major oil sanctions, despite the recent US move to grant some sanctions relief to Tehran's civil nuclear program.

ICE Brent and NYMEX WTI crude futures fell late Feb. 16 on media reports that the US was in "very final stages" of Iran nuclear talks. The negotiations have been the top oil supply risk for 2022, with an interim deal potentially increasing exports by 700,000 b/d while a breakdown in talks could spike geopolitical tensions and global oil prices, according to Platts Analytics.

At 2200 GMT, ICE Brent was trading at $91.79/b, down $1.49, while NYMEX WTI was trading at $90.62, down $1.45.

In the US, crude oil production from shale is expected to spike by another 109,000 b/d in March and exceed 8.7 million b/d, driven by growth in the Permian Basin and Texas' Eagle Ford Shale, the US Energy Information Administration said Feb. 14.

While rig counts are rising, US shale producers appear to be in no hurry to ramp up output, or at least announce any dramatic increases publicly.

For instance, Devon CEO Richard Muncrief said on an earnings call Feb. 16 that the company would stick with its maximum 5% growth plan for 2022.

[W]hen you see such a steep backwardation and you start thinking about trying to add activity, by the time you bring barrels on...it's going to be a while down the road," Muncrief said, citing uncertainty "as you look out in the outer years."