Oil Context Weekly (W11)
Calamitous week brings crude prices more than $10/bbl lower as banking sector panic catches overstretched bullish oil positioning flat-footed and speculative steepener trades bolted en masse.
Wow, what a truly calamitous week for crude prices—lots of interesting details in each of the major sections that add colour to the biggest weekly rout we’ve seen in oil markets since early-August 2022.
The Financial Times did a good mid-week wrap-up, with some comments for yours truly, that you can check out here.
I also joined the Top Traders Unplugged podcast once again (listen here) to follow up our conversation on crude market fundamentals, this time with a very-timely focus on the ideal utilization of the US Strategic Petroleum Reserve, or as the episode is titled: The Federal Reserve of Oil.
Every week, I summarize the developments in flat crude prices, calendar spreads, high-frequency inventories, refined products, and positioning data and then provide a taste of the themes I’m thinking about or following closely.
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Flat prices cratered by more than $10/bbl this week to less than $73/bbl (Brent) in their worst weekly performance since early-August 2022 as banking sector concerns caught overstretched bullish positions in crude contracts flat-footed.
Calendar Spreads narrowed considerably alongside those flat price declines, with prompt Brent spreads tightening to within a single penny of contango at Friday’s lows; however, weekly gains at the back of the curve point to mounting pressure in the form of an unwinding of speculative steepener trades that are associated with the broader risk-off crude rout and not true fundamental pressure.
Inventories data was mixed geographically—with total petroleum draws in the US (-1.9 MMbbl) and ARA Europe (-0.6 MMbbl) and a build in Singapore (+2.8 MMbbl)—but surprisingly net-bearish, especially given the size of the inflows into Singapore that were the largest since mid-December.
Refined Products provided an interesting contrast to the carnage in crude prices as crack spreads rose markedly, which runs counter to the idea that the crude selloff was driven by a deteriorating macro outlook and not the far simpler speculative washout explanation.
Positioning data revealed that hedge funds and other money managers were net-sellers of Brent futures and options contracts last week-through-Tuesday to the tune of nearly 65 MMbbl, the largest weekly decline since mid-November—and that didn't even include Wednesday’s big selloff; the net-spec position fell back steeply from last week’s level, which was itself a pandemic-era high-water mark.
SPR Refill Commitment Issues once again come into focus this week as WTI crude prices crashed into, and then well below, the Biden administration’s stated $67-72/bbl refill trigger range; given widespread skepticism that the admin will ever refill the SPR, I would have hoped for more definitive comments from the White House but instead got a senior energy advisor saying that they’re taking it “one day at a time” and that they will “wait to see where the prices are going to be landing”.