Oil Context Weekly (W29)
Friday’s aggressive crude price selloff had all the telltale signs of a speculative liquidation, with physical market indicators holding far firmer in the face of the paper pain.
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Summary
Flat Prices pull back sharply in Friday trading to close down more than $2/bbl despite no obvious headline triggers—likely driven by a liquidation of still-overstretched speculative length as June’s rally fades and momentum rolls over.
Futures Curves signaled stronger underlying conditions than the flat price selloff suggests, with prompt calendar spreads more steeply backwardated and DFLs holding steady, while year-forward spreads, more often associated with speculative flows, traced the pullback in prices.
Inventories data was mixed and extremely volatile, leaning bearish but with US inventory data polluted by Hurricane Beryl effects; however, the largest move was actually in Singapore where stocks rocketed higher from the bottom of their seasonal range to above the seasonal average, at least temporarily reversing what had been a deepening source of fundamental strength.
Refined Products uneventfully continued last week’s trend of weakening diesel crack spreads and stable gasoline, with the spread between the two key transportation fuels narrowing to less than $1/bbl; gasoline term structure strengthened after last week’s easing, while diesel structure remained stable and in notable contango.
Investor Positioning data revealed that speculators were modest net sellers of crude contracts last week, though remain overstretched to the upside and the likely kindling for Friday’s aggressive selloff that had all the telltale signs of a rapid speculative liquidation; even with today’s selloff, it’s likely that positioning risk remains tilted to the downside for at least a few more weeks.
As Well As steeply lower Russian crude exports through the first half of July and possibly the largest IT outage in history hobbling the global economy on Friday.