Oil Context Weekly (W49)
Crude fell another ~$10 per barrel, refined product inventories rose sharply, diesel crack spreads eased, price caps on Russian crude took effect, and the Keystone pipeline sprung a leak
Welcome to Oil Context Weekly, my less formal wrap-up of the market analysis, news flow, and data releases that matter.
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 experienced another rough week, falling from a Monday morning high of ~$88.50/bbl to ~$76.50/bbl (Brent basis) at the time of writing; WTI prices came perilously close to breaking below the $70/bbl level late Friday afternoon but ultimately rebounded to ~$71.50/bbl to end the week.
Calendar Spreads weakened further this past week as prompt Brent spreads fell definitively into contango following last week’s contract expiry test-run, with even the less capricious year-ahead spread falling briefly into contango multiple times this week and currently sitting around $1/bbl backwardated—down from a backwardation of $11/bbl less than a month ago.
Inventories data revealed a fairly large total petroleum build in the US (+5.9 MMbbl), which was only partially offset by smaller net-draws in Singapore (-1.5 MMbbl) and ARA Europe (-0.7 MMbbl); the US headline build obscured completely opposite performance between crude, which drew down sizably, and products, which saw very large inflows, continuing the prior weeks crude-vs-products reversal trend.
Refined Products markets showed further signs of easing this week in sympathy with rising inventories: diesel crack spreads in New York Harbor briefly fell below $40/bbl for the first time since August and was within a few bucks of March levels—while we’re now down nearly 50% from the October highs at around $40/bbl at the time of writing, we’re also still more than twice the pre-2022 norm.
Positioning data revealed a relatively unchanged speculative net position week-over-week (+1.5 MMbbl) through Tuesday, running counter to my expectation that this week’s price rout was driven primarily by speculative selling; comparatively weak speculative selling coupled with intense downward price pressure is cause for further concern as it suggests that other, less-speculative sellers are driving the bus.
Russian Price Caps took effect on Monday but the immediate effect has been a logistical bottleneck of mostly Kazakh crude unable to transit the Turkish straits; meanwhile, president Putin has reiterated his threat to shut in production as price cap punishment and also stressed that the ceiling is above where most Russian crude is currently trading—vague yet contradictory threats all the way down, it seems.
Keystone Leak: on Thursday, the market learned that TC Energy, the operator of the Keystone pipeline, had shut down the system following the detection of a leak in Kansas; current estimates put the volumes released at ~14,000 barrels, larger than comparable recent leaks in late-2017/2019 that both resulted in a complete shutdown of the line for roughly 2 weeks followed by a period of lower capacity operations.