Oil Context Weekly (W38)
Crude’s rebound from deeply oversold levels continued this week, driven by ongoing speculative rebuying and bolstered by a broader rally in equity markets & risk assets in the latter half of the week.
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Summary
Flat Prices rose more than $3/bbl to end the week around $75/bbl (Brent), extending the rally that began after the depths of last week’s sub-$70/bbl three-year low for crude prices.
Timespreads continued to strengthen, confirming the flat price rebound and rejecting the idea that there are any real surplus pressures in the current spot market; prompt futures spreads have rallied continuously since last week’s price trough, ~$0.20/bbl more backwardated on the week, and Brent DFLs have seen backwardation steepen by $0.30/bbl.
Inventories data was mixed between headline builds across the US and ARA Europe and a continuation of counterseasonal draws in US crude stocks; Singaporean stocks were flat at a headline level but that masks a split between rising stocks of low-value residual fuel oil and falling stocks of previously oversupplied gasoline and diesel.
Refined Products markets stabilized as both diesel and gasoline cracks gained modestly alongside the crude rally; however, the longer-term trend in refined product markets remains one of weakening transportation fuels (gasoline/diesel) and strengthening petrochemical feedstocks (naphtha/LPG).
Positioning data revealed that speculators were modest buyers of crude contacts this past week-through-Tuesday, but less so than anticipated given that crude prices rose ~$5/bbl over the same period; positioning remains extremely oversold and the rebuilding of this speculative length is expected to maintain positive crude price support over the coming weeks.
As Well As crude’s ongoing positioning-driven rebound from last week’s deeply oversold levels, exploding wireless communications devices across Lebanon stoke renewed political risk concerns, Libya’s export blockade looking more and more porous, and the US DOE looking to buy more crude at these lower prices to continue refilling the SPR.