Brent Rises as Saudi Arabia Considers Expanding East-West Pipeline

In the news, Saudi Arabia is considering expanding the capacity of its East-West crude pipeline to the Red Sea, according to Reuters sources. The move would allow the kingdom, and potentially neighbouring producers, to export more crude without relying on the Strait of Hormuz. The pipeline has the capacity to transport up to 7mb/d of crude to the Red Sea port of Yanbu; roughly 2mb/d supplies west coast refineries, while the remaining 5mb/d is available for export, according to Aramco CEO Amin Nasser. In India, Mangalore Refinery and Petrochemicals has chartered an Aframax tanker to lift Iraqi crude from Basrah on 19-20 Jul, becoming the first Indian state-owned refiner to resume Gulf crude loadings since the partial reopening of the Strait of Hormuz. Related, India’s fuel demand has fallen 3.7% m/m to 19.42Mmt in June, according to PPAC data. Gasoline sales declined 3.2% m/m, while diesel demand eased 1.4% from May. Elsewhere, US SPR crude stocks for the weeking ending 03 Jul fell 6.2mb w/w to 319.5mb, the lowest level since April of 1983, as part of the 172mb release programme aimed at easing supply tightness following the Iranian war. In other news, Japan is set to see increased Middle Eastern crude supply this month, as two additional Japanese-owned VLCCs carrying Saudi crude exited the Strait of Hormuz on 07 Jul. The vessels join previously stranded tankers that departed the day before, bringing total Japan-linked crude cargoes leaving the Gulf this week to around 16mb. Each tanker, operated by Nippon Yusen and Kawasaki Kisen, is carrying 2mb of Saudi crude loaded on 01 Mar. Finally, as of the time of writing, the front-month (Sep/Oct) and 6-month (Sep/Mar’27) Brent futures spreads are at -$0.12/bbl and $0.40/bbl, respectively.

This morning in Dated we saw some buying of Bal Jul/Aug Dated and DFL, and Aug drifted higher on Dated-to-Lead. We saw some buying in the front with 13-17 Jul vs Cal Aug buying and buying of the 13-17 DBL. We also saw buying out of 20-24 Jul, 27-31 Jul vs Cal Aug and 3-7 Aug vs Cal Aug, trading at $0.18/bbl and bid over. However, we saw a size seller of Cal Aug vs 19-25 Aug, trading at -$0.10/bbl. We also saw selling of 17-21 Aug vs Sep Brent futures at -$0.10/bbl.

A strong start to the morning VLSFO, in particular Sing 0.5. Spreads were better bid off the bat with Aug/Sep trading up to $13.50/mt from overnight levels of $11.50/mt. The Sing crack in August got as high as $13.10/bbl from yesterday's close around $12.10/bbl. Euro crack enjoyed some strength off the back of Sing 0.5, however 0.5 E/W has continued to see buying down the curve resulting in Euro 0.5 upward movement being capped. The Euro crack closed the morning around $4.40/bbl from $4.10/bbl. It was a similar story on Euro spreads with Aug/Sep implied up to $9.75/mt from $9.25/mt.

In HSFO, 380 E/W continued to drift off a touch this morning however liquidity remained fairly low. Aug 380 E/W traded down to $12.25/mt from $13.75/mt last night. 380 Cracks and spreads in were fairly rangebound otherwise. Aug/Sep 380 traded down to $0.25/mt briefly before closing the morning around $0.75/mt. 380 cracks traded between -$7.15/bbl and -$7.00/bbl for the majority of the morning without a clear axe in the market. Barge cracks as a result were implied a touch higher with Aug barge crack up to -$9.10/bbl. Barge spreads were largely unspoken, Aug/Sep barges was implied around $1.75/mt.

This morning in distillates, Sing gasoil spreads were mixed overall, with Aug/Sep trading down to $2.50/bbl early on before firming to $2.70/bbl last. E/W saw potential stop-outs initially, with Aug trading down to -$71/mt for 350kb, before rallying to -$67/mt bid last. Regrade saw buying in the front and selling in Q4, with Q4 trading down to $1.15/bbl.

Prompt ICE gasoil spreads weakened overall, with Aug/Sep opening at $35/mt before trading down to $33/mt, while cracks firmed to $51.40/bbl and then weakened to $49.90/bbl in Sep. Heating oil spreads weakened, while HOGOs traded rangebound around 29.3c/gal.

This morning in gasoline, Sing 92 flat price traded end window at $90.75/bbl with MOC well offered. The East was offered, with 92 cracks getting sold down from $19.45/bbl to $18.40/bbl, and spreads were getting sold by refiners, with Aug/Sep trading down from $3.60/bbl to $3.10/bbl. E/W sold off from -$13.80/bbl to -$14.40/bbl but EBOBb was relatively weak as well: cracks opened weaker at $32.70/bbl and traded down to $32.50/bbl, with Q4 trading at $14.10/bbl. Spreads were a touch softer as well, as Aug/Sep weakened from $55/mt to $53.75/mt.

This morning in NGLs, FEI spreads continued to soften with Aug/Sep trading down from $6.50/mt to $5.50/mt and Sep/Oct trading down from $0.50/mt to -$0.50/mt. The Cal'27 buyside interest from yesterday returned, with Cal'27 CP/MOPJ trading at -$103/mt before being rebid at -$101/mt by the end of the morning and Cal'27 FEI/CP and LST/FEI were also lifted at $34/mt and -$163/mt, respectively. There was scale back FEI/MOPJ buying out of Aug at -$86.50/mt and -$87/mt, before it strengthened slightly into window to settle at -$85.50/mt. Quiet morning in CP, although we did see the Aug FEI/CP trade at $35/mt, before strengthening to $37/mt post-window. End window on screen, Aug FEI flat price was hit at $574/mt.

GOOD EARNINGS. BAD REACTION. THE MARKET IS CHANGING.

Samsung reported an extraordinary +1,800% YoY profit increase, comfortably beating expectations. The reward? An 8% share price decline. SK Hynix fell 9%, dragging the Kospi down 4.9% (triggering circuit breakers), with Taiwan (-3.9%) and Japan (-2.2%) following.

Kospi sits on key long-term support. When blowout earnings are sold, it's rarely about the company. It's about positioning, expectations and sentiment.

The broader macro picture is becoming increasingly mixed:

• US ISM Services remained expansionary at 54.0, but momentum and pricing pressures continue to ease. AI investment remains the primary engine of growth.
• Long-end bond yields continue to climb. The US 30-year Treasury is back above 5%, while Japan's 10-year yield hit a 29-year high - foreign investors are dumping JGBs at the fastest pace since 2023, adding pressure on global valuations and carry trades.
• FX positioning is becoming increasingly crowded. Traders are the most bullish on the US dollar since 2015 - even as the dollar index slips toward key support at 100.40 - while hedge funds hold their largest bearish yen position since 2007. A combination vulnerable to a sharp reversal.
• Credit stress is quietly building beneath the surface. Russell 2000 interest expense now eats up 31% of EBITDA, more than double 2020 levels and over 4x the S&P 500's 6.7%. Nearly 40% of Russell 2000 companies remain unprofitable, leaving smaller companies far more exposed to a prolonged higher-for-longer rate environment.

Meanwhile, COMEX gold positioning has been largely flushed out, historically a healthier backdrop for a renewed rally, while Dell added $22 billion in market value after a single endorsement from President Trump - a reminder that political headlines are increasingly moving markets.

The Bottom Line

The market is sending an important message. Fundamentals remain reasonably healthy, but expectations have become even stronger. When exceptional earnings trigger heavy selling, good news is no longer enough.

With rising global bond yields, crowded USD longs against record bearish yen positioning, and widening small-cap credit stress, the next major move is likely to be driven less by earnings and more by positioning.

In this market, sentiment matters as much as fundamentals.