Oil Context Weekly (W42)
Third least volatile week for crude since the invasion of Ukraine masks plenty of action along the futures curve, most spec selling since June, and finally-easing diesel crack spreads.
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Every week, I summarize the developments in flat prices, calendar spreads, high-frequency inventories, crack spreads, and positioning data and then provide a taste of the themes I’m thinking about or following closely—highlights now included in the free summary.
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Summary
Flat Prices experienced their third least volatile week since February (when Russia invaded Ukraine), bouncing from a low of $88.77/bbl on Tuesday to a high of $94.77/bbl on Thursday before ending the week (as of writing) at $93.40/bbl, about $1.50/bbl above where we started on Monday.
Calendar spreads, on a prompt basis (M1 vs M2), spiked back to $2.15/bbl, which is their highest level since the price peak in June and an expression of extreme prompt market tightness.
Inventories data showed uniform draws across Singapore (-1.7 MMbbl w/w), Europe (-0.1—barely, but I’m counting it), and the US (-2.5); inventories remain low on an absolute basis globally and these latest high frequency data show little sign of that abating, especially in the critically tight diesel market.
Crack Spreads for diesel finally caught a break this week and started to come back down to earth on the back of the beginning of the end to French refinery strikes.
Positioning data confirmed that this past week through Tuesday represented the heaviest 5-day selling stretch for speculators since prices really came off in late June; nominal contracts fell by 56.9 MMbbl w/w and the net managed money position as a share of overall open interest fell to 7.5% from 8.8% last week.
Steel Pipe, or oil country tubular goods (OCTG), prices continue to rise despite pandemic-era bottlenecks easing across much of the rest of the steel industry; OCTG tightness is yet another supply chain strain slowing the US shale patch’s production rebound.
The Outlook for Russian Production is starkly different between major forecasting agencies, like the EIA and OPEC, to the tune of more than 1 MMbpd of 2023 supply and this is having a marked effect on forecast dispersion.
Western Canadian Select (WCS) Differentials have seemingly bottomed after reaching their widest level last week ($32.50/bbl) since the epic pipeline-related blowouts to $50/bbl in 2018.