Oil Context Weekly (W41)
Crude rose more than $6/bbl over a choppy week as markets attempt to price the barrel through the fog of war.
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 gained more than $6/bbl following the beginning of the Israel-Hamas war, benefitting from both classic political risk pressure as well as expectations of tangible bullish developments re: the enforcement of US sanctions against booming Iranian crude exports and the chilling of US-led negotiations with Saudi Arabia that were previously expected to yield some kind of Saudi production support in early 2024.
Calendar Spreads remain strong though notably underperformed flat prices over the week; prompt Brent spreads, at ~$1.60/bbl, are slightly lower than Monday levels while flat prices were setting fresh weekly highs on Friday afternoon.
Inventories data was mixed but leaned bearish this week as modest draws in Singapore and ARA Europe were overwhelmed by the largest US crude inventory build since early February, which reversed 5 weeks of cumulative crude draws.
Refined Products have once again split between a restrengthening of middle distillates products like diesel and gasoil and further weakening in gasoline that brought cracks to a nearly 3-year low.
Positioning data confirmed that speculators were net sellers of a whopping 102.9 MMbbl of crude contracts, the largest weekly reduction since April; this reduction was expected following last week’s $11/bbl rout, but the magnitude of the confirmed selling is at the upper end of my own expectations, which greatly reduces crude’s downside positioning risks.
As Well As oil market consequences of the Israel-Hamas war, assessing the degree of Iranian culpability, and reduced chances for Saudi production increases tied with a frozen deal that would have seen Riyadh officially recognize Israel.