Oil Context Weekly (W48)
Crude markets choppy but ultimately failed to get far in either direction as we await the double-policy-whammy of the OPEC+ output decision and Russian price cap implementation on Sunday/Monday
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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 started the week with a China-induced rout below $81/bbl on Monday, rose to nearly $90/bbl Brent by Thursday, and ultimately ended only ~$2/bbl higher than where we left off last week (around $86/bbl at the time of writing).
Calendar Spreads weakened further this past week as prompt spreads chopped sideways this past week—virtually flat at the time of writing; further down the curve remains decently backwardated but also exceptionally weak when compared to recently much steeper backwardation witnessed over the past year.
Inventories data showed a mixed but bullish picture with a huge total commercial petroleum draw in the US (-8.8 MMbbl)—its largest such draw since late-September—joined by a modest draw in ARA Europe (-0.6 MMbbl) and only partially offset by the largest product build in Singapore in 10 weeks (+2.2 MMbbl).
Refined Products margins vs. crude eased further this week on the back of strong inflows of gasoline and diesel stocks that brought middle distillate inventories back to at least the lower end of seasonal ranges for the first time in a long while.
Positioning data revealed a material reduction in speculative length in crude futures and options contracts, falling 45 MMbbl on a net basis between WTI and Brent given a 32.5 MMbbl trimming of longs and the establishment of 12.5 MMbbl in fresh shorts. That net position now amounts to 6.4% of total open interest, the lowest since mid-August; however, the net position of just 264.8 MMbbl is the lowest, on a nominal barrel basis, since the depths of spring 2020.
OPEC+ producers will meet virtually on Sunday, December 4th (AKA Russian Price Cap Eve) to decide where the producer group’s output goes in the New Year, with pre-meeting chatter indicating that a rollover of current quotas is the most likely scenario; however, risk is tilted toward a deeper cut given other weakening market signs discussed below.
Russian Price Cap actually has a price now following reports that Poland had agreed to a $60/bbl cap alongside regular adjustments so as to ensure that the cap is “at least 5%” below the market price for Russian crude.