Oil Context Weekly (W40)
Terrible, horrible, no good, very bad week for crude prices, which collapsed $11/bbl for the worst weekly performance in more than a year, likely driven by a speculative washout on demand concerns.
Every week, I summarize developments in flat crude prices, calendar spreads, high-frequency inventories, refined products, and positioning data as well as a taste of the themes I’ve been thinking about or following closely.
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Flat Prices imploded as crude contracts plummeting ~$11/bbl to ~$84/bbl Brent in the largest weekly decline since August 2022, exceeding even the Silicon Valley Bank collapse scare this past March; the decline was likely driven by a rapid liquidation of overextended speculative positions, fueled by mounting economic and demand concerns.
Calendar Spreads unsurprisingly narrowed given the extent of the flat price collapse, however prompt spreads remain very steeply backwardated, only back down to the level of two weeks ago and the highest before that since last November, continuing to signal reasonably firm spot market conditions despite broadly negative sentiment.
Inventories data revealed headline builds across all major hubs, with ongoing and notable splits between the trajectories of crude and refined product stocks; in the US, gasoline stocks swelled to well back above the seasonal norm, while crude stocks continued to decline and now sit at the bottom of their trailing seasonal range.
Refined Products are increasingly under pressure, with middle distillates cracks for diesel and gasoil falling below $40 and $30, respectively, for the first time since July on the back of a reversal of Russia’s export ban and concerns over weak freight demand, while gasoline remains roughly flat at last week’s anemic levels amidst rising inventories.
Positioning data revealed that speculators were net sellers of crude contracts to the tune of 31.8 MMbbl last week-through-Tuesday, which while the largest weekly reduction since June isn’t enough to explain the extent of the week’s price declines; however, given that the data only covers the period through Tuesday and the heaviest selling occurred on Wednesday, we’re going to need to wait for next week’s data release to better understand how much the bulk of the week’s price declines ($7 of the week’s $11 total) were driven by speculative liquidation.
As Well As assessing recent US gasoline demand concerns, secret US-Saudi meetings, Moscow reserving its ban on diesel exports (as expected), and, last but certainly not least, how I’m interpreting ExxonMobil’s ~$60bn acquisition of Pioneer in the context of the future trajectory of US crude production.