Oil Context Weekly (W37)
Crude prices finally bounced after reaching a 3-year low on Tuesday, with the dive lower and subsequent rebound driven far more by speculative repositioning than any immediate fundamental factors.
Had the opportunity to share my thoughts on the bloodbath of a crude price selloff we’ve experienced over the past few weeks with both the CBC (print) and the Financial Post (video); market conditions have improved from the time at which these interviews were conducted, but these provide a good sense of exactly how I was feeling and what I was watching as prices were cratering anew on Tuesday.
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Summary
Flat Prices finally bounced, rising $1/bbl on the week to end at $72/bbl Brent, after sinking below $70/bbl for the first time since late-2021, weighed down by record speculative selling pressure.
Term Structure is finally starting to recover alongside the bounceback in flat pricing; while never signaling as dour a market as did flat prices, some timespreads sunk close to contango and their subsequent re-steepening will alleviate a core concern for markets.
Inventories data were mixed with a sizable build in the US (+9 MMbbl) vs. a large draw (-3.1 MMbbl) in Singapore and a smaller draw (-0.5 MMbbl) in ARA Europe; US refined product stocks remain generally higher than this time last year, while the largest product-level decoupling is in ARA Europe where gasoline stocks continue to sink while distillate stocks soar.
Refined Products markets were split between gasoline crack spreads seemingly finding their bottom after a months-long rout and diesel crack spreads continuing to decline.
Positioning data revealed that the net speculative position in crude contracts reached a new all-time low earlier this week, notably below even the level realized in early-2020 amidst maximum pandemic pain; as such, positioning risk is overwhelmingly bullish as money managers are expected to rebuild these grievously overstretched short positions over the coming weeks.
As Well As differentiating between paper and fundamental price pressures, major public facing agencies downgrading fundamental outlooks while the EIA’s near-term price forecast implies a sharp crude rally, Libya’s more flexible crude export blockades, and Hurricane Francine temporarily shuttering nearly half of US crude production in the Gulf of Mexico.