OPIS Insights

Barron’s Senior Energy Writer Laura Sanicola and OPIS Chief Oil Analyst Denton Cinquegrana discuss what’s ahead for oil this week.

This week’s video discusses recent developments in the oil market, focusing on the US seizure of a Venezuelan oil tanker and slight declines in refinery margins, including diesel crack spreads that have fallen by more than 30% from their peak. We also examine upcoming challenges for refiners, including new capacity from Nigeria’s Dangote refinery and Mexico’s Das Bocas refinery, which could alter supply dynamics in the Atlantic Basin and potentially impact US diesel markets in 2026.

Transcript:

LAURA SANICOLA: Hi, everyone. This is Laura Sanicola, author of Barron’s Energy Insider, and I’m here today with Denton Segugrana, chief oil analyst at OPIS. Denton, thanks for joining me.

DENTON CINQUEGRANA: Hey, Laura. How are you today?

SANICOLA: Good. So let’s talk about the big news of the week, which is that the US has seized an oil tanker.

First time it seized a Venezuelan oil tanker that is a tanker that’s bringing Venezuelan fuel exports or crude exports rather to the market.

Markets not really reacted. Tell me about the significance of this.

CINQUEGRANA: Yeah. Very muted response by the markets. WTI and and Brent are still well, WTI is in the upper fifties. Brent, low sixties. Really hasn’t moved all that much. It’s the move this week has actually been down overall, but there was a small upward reaction kind of market cut some losses after the news broke about the Venezuelan tanker. But you gotta remember, at the end of the day, Venezuelan crude is sanctioned.

They’re exporting maybe about a million barrels a day. So it’s not, in the grand scheme of things, a huge loss of product, especially as we are anticipating a large over supply, meaning supply is higher than demand for force for twenty twenty six is being forecasted and even into twenty twenty seven.

SANICOLA: Right. So while there’s potential for escalation here, you know, the impact on what’s already sanctioned crude is kind of estimated to be relatively limited in your view.

CINQUEGRANA: Yeah. I think it’s, you know, again, about a million barrels a day of exports coming from Venezuela.

So in the grand scheme of things, how much oil is being produced out there, it’s I wouldn’t say a drop in the bucket, but it’s not a significant amount.

SANICOLA: Great. And let’s move on to refining. Some of the refiners ended the week a little lower, and, you know, I think part of it is that the margins for refiners are coming down a little bit. Tell me about why that might be.

CINQUEGRANA: Yeah. So refining margins have been hit this week and really over the last couple of weeks. So ever since the diesel crack spread using the futures market popped to about fifty two dollars a barrel, it’s dropped over thirty percent. It’s still at about thirty three dollars thirty four dollars thirty five dollars a barrel. Gasoline has dropped to about sixteen dollars a barrel from roughly twenty or so. So again, both of these have have dropped by about thirty percent.

What’s happened is obviously inventories are building. This is a real time of year where gasoline stocks really start to build between now and the end of January. So I would expect more pressure on gasoline. Diesel has really kinda fallen apart over the last really two weeks.

A lot of that has to do with European gas oil. So the the two markets work in tandem with one another, and really it was the gas oil market that’s really pulled diesel down with it. So that’s really kinda what what’s happened there in the diesel market. But again, while these crack spreads are down quite a bit over the last couple of weeks, they’re still better than what they were this time last year for the fourth quarter, and there’s still obviously a couple weeks left for the fourth quarter.

But the diesel crack for the fourth quarter is probably gonna end up averaging about, you know, thirty eight, thirty nine dollars a barrel, which is, probably about ten percent, fifteen percent higher than this time last year. And gasoline is probably going be in the seventeen dollars eighteen dollars a barrel, which last year at this time, the fourth quarter of twenty twenty four, averaged probably about thirteen dollars a barrel. So you know, maybe perhaps the demise of refiners has been a little bit exaggerated.

SANICOLA: I think that could be the case. There is the potential for some more headwinds next year. I noticed Mizuho, which has Valero as a, you know, a key outperformer in the refining sector, did downgrade the stock from buy to neutral, citing, you know, potentially weaker refining margins next year from current levels, as you said, already elevated, as some major new refining projects move online in the first half of twenty twenty six or really ramp up, you know, how how would that impact the market, and which are those?

CINQUEGRANA: Yeah. So when you talk about the Atlantic Basin and new refineries and new capacity coming online, you gotta start with Nigeria’s Dangote refinery.

Six hundred fifty thousand barrels a day, not actually hitting that full stride yet, but they’re getting a lot closer to be able to make US spec gasoline and European spec gasoline. So getting close there, but they do have maintenance in January and February coming up. And then the other one is the Das Bocas refinery in Mexico.

You know, again, this is one that we’ve kinda been waiting on for the last couple of years. A couple months ago, they hit fifty four percent of capacity of refining capacity, which is not great, but for a refinery that’s just kind of getting under its feet, getting its feet underneath them, I should say, it’s it’s starting to get there. From what I understand, they can make US spec diesel right now.

So it’s gonna be one that can has potential to alter some of the some of the supplies, meaning they’ll be able to supply Mexico and may not necessarily rely so much on US imports of of diesel. So the US may have a little bit of diesel buildup as a result of that.

SANICOLA: Alright. Well, thanks so much Denton for breaking this all down, and thanks everyone for joining us. We’ll see you next week.