Oil Context Weekly (W2)
Barrel rallies then yawns following Western strikes on Houthi targets and the beginning of the oil market’s real test in the Red Sea as previously-unphased tankers start U-turning on the escalation
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Summary
Flat Prices ended the week slightly down after falling back from a successful breach of the upper end of the year-to-date range following confirmation of joint US-UK strikes on Houthi targets; however, crude’s range remains entrenched and flat prices yield little in the way of strong signal.
Futures Curves strengthened for Brent crude, with spot market pressure confirmed by more steeply backwardated Brent CFDs while WTI prompt spreads actually eased somewhat in deeper contango—the difference in performance illustrates how any physical market impacts stemming from tanker flow disruptions will be felt much more in seaborne rather than inland benchmarks.
Inventories data leaned bearish on the back of another large stateside inflow that continued last week’s shockingly large refined product inflows and added a surprise crude build to the mix.
Refined Products strengthened on low Asian and European stocks as well as concerns related to product tanker displacement following the latest escalation in the Red Sea, seemingly unconcerned about the mounting refined product inflows into stateside storage tanks.
Investor Positioning data revealed that speculators were net buyers of crude contracts over the past week-through-Tuesday, which leaves the net speculative position in a reasonably neutral territory though risks likely remain tilted slightly to the upside given the still-sizable gross shorts held by speculative participants.
As Well As Western strikes on Houthi targets ratchet up tension in the Red Sea Crisis, the latest SPR refill solicitation further stretches the DOE’s forward-purchase muscle, TMX’s really important hearing, and trying to find meaning in a stubbornly range bound market like that in which crude is currently trapped.