Oil Context Weekly (W3)
Another solid week for crude, up $2.40/bbl on further China reopening optimism, though the journey through the week was bumpy given hawkish Fed comments; last week's rally driven by HUGE spec inflows.
I had the opportunity to join Tony Greer on the first episode of his new Oil Ground Up podcast—we covered a huge range of topics and dug deep into what’s driving the oil market. Check out the full interview, titled “Kinky Contango”, for free here.
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 $2.40 per barrel this past week to settle around $87.70/bbl (Brent), but only after a few head-fakes along the way: prices began the week rallying hard through to Wednesday morning before macro headwinds driven by hawkish Fed comments brought crude lower, alongside equities, and then ultimately climbed back to regain most of those losses by the end of the week.
Calendar Spreads mostly tracked the cadence of prompt price movements over the past week, with some differentiation across the curve: prompt spreads tightened nearly to the point of flipping back into backwardation for the first time since early December, while bellwether Jun23/Dec23 tightened only modestly on the week.
Inventories data revealed mixed results: US total commercial petroleum inventories rose by 2.4 MMbbl, Singaporean stocks fell 0.5 MMbbl, and ARA European stocks remained essentially flat at a 0.1 MMbbl build—no doubt, the biggest number on the screen this week was the 8.4 MMbbl rise in US crude stocks given still-depressed domestic refining activity, which brought the total crude inflows in the first two weeks of the new year to a very high 27.4 MMbbl.
Refined Products firmed up in the latter half of the week as spreads for both gasoline and diesel in New York Harbor rallied together on continued Chinese demand, French refinery strikes despite pending Feb 5th sanctions against Russian refined product exports, and reports that US refiners are planning especially heavy seasonal maintenance beginning next month.
Positioning data revealed that, as expected, money managers were net buyers of crude last week to the tune of 81.2 MMbbl, the largest weekly increase since APRIL 2020; as a percentage of total open interest in these contracts, the net spec position rose 1.43% w/w to 8.47%, its steepest weekly proportional increase since we crawled out of the August rout. Last week I wrote that “I expect that we’ll see a solid bounce in this spec number in next week’s report.” And boy, oh boy, does this count as a solid bounce
Iranian Exports have been rising steadily over the past couple of years and reached around 1.3 MMbpd at the end of 2022, up about 1 MMbpd from mid-2020 levels.