Oil Context Weekly (W4)
Weird Friday rout pulls crude lower on technical signals despite absence of relevant news, while now fully backwardated Brent futures curve better reflects the barrel’s recently bettered prospects
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Flat Prices fell ~$1.25/bbl from last week’s close to $86.35/bbl (Brent basis) but selling pressure was definitely strongest on Friday on… seemingly nothing. The lack of relevant headlines and the coincident moves in other commodities—not to mention [briefly] equities and the US dollar–puts Friday’s selloff firmly in the technical/macro category, which is to say lacking much oil-specific information. Technical trading factors further exacerbated the pullback.
Calendar Spreads strengthened through the week and didn’t face the same Friday pressure as flat prices. Brent’s prompt calendar spread finally broke back into backwardation, meaning that the entire futures curve is now backwardated for the first time (excluding initial new monthly contract trading) since late-November.
Inventories data was mixed this past week, with US total petroleum inventories rising by 4 MMbbl vs. draws of 1.3 MMbbl and 0.4 MMbbl across Singapore and ARA Europe, respectively.
Refined Products 3-2-1 crack spread (2 barrels of gasoline & 1 diesel) hit a 3-month high in the US of around $40/bbl (vs. Brent) early in the week despite the seasonal downturn in demand before falling back materially through the latter half of the week.
Positioning data revealed that money managers were net buyers of crude futures and options contracts to the tune of 46.1 MMbbl through the week ending Tuesday on the back of new longs (+24.8 MMbbl) and fresh short trimming (-22.3 MMbbl), lifting the net-spec share of total open interest to 9.2%, the highest level since early November and likely prepping the market for the capricious selloff witnessed Friday.
Russian Refined Products Ban and price cap set to enter into force in just more than a week, on February 5th, and in a mirror of the crude price cap debate Western policymakers are debating the various price cap levels right up until the last minute—current proposals for a diesel price cap of $100/bbl seems roughly in line with the expected post-Feb 5th market price for Russian distillates and seems unlikely on its own to materially hamper Russian exports.