Oil Context Weekly (W2)
Crude rose nearly $7/bbl for the best weekly performance in more than 3 months, but gains were driven more by the anticipation of future Chinese buying than realized purchases in the market today.
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 rose more than $6.70/bbl over the past five trading days and marked the best weekly performance in more than three months, likely on the back of both physical Chinese buying and, more importantly, paper investors positioning themselves ahead of an broadly anticipated Chinese demand rebound.
Calendar Spreads have, meanwhile, traded funny through this flat price rally, with the bellwether Jun/Dec spread tightening notably but the prompt spread actually falling deeper into contango w/w—the former likely reflects speculative steepener bet inflows whereas the latter reveals continued weakness in spot market activity.
Inventories data was overwhelmingly bearish this week with builds across all major regions—ARA Europe was up 0.6 MMbbl, Singapore was up 1.8 MMbbl, and most notably US total commercial petroleum inventories built by a staggering 22.4 MMbbl, which is the largest such build since the COVID-bottom in April 2020 and easily ranks amongst the largest builds on record.
Refined Products strengthened and refined product crack spreads in New York Harbor tightened, with diesel cracks rising around $5/bbl on the week to just more than $52/bbl and gasoline cracks rising by about the same amount to above $21/bbl for the first time since Halloween
Positioning data revealed that money managers were net sellers of crude last week and the net speculative position and a share of total open interest fell to 7%, on the lower end of the recent trend; however, given the likelihood of sizable investor inflows witnessed through the latter half of the week, I expect to see a decent jump in that spec position in next week’s report.
Russian Crude is contending with a smaller and smaller market, with remaining buyers able to extract increasingly steep discounts from exporters of distressed Russian barrels—Urals crude was assessed at less than $38/bbl last Friday, less than half the value of Brent.