Oil Context Weekly (W50)
Absolute rug-pull of a week for oil markets, with an acute Friday rout on China COVID news erasing more than half of crude’s weekly price gains and virtually all the improvement in the futures curve.
Big news on the SPR front earlier today—a refill plan (read more below)! For more context on how I broadly think about optimal SPR policy, check out some of my earlier writing on the topic: Strategic Release (free), SPR 2.0 (free), and Strategic Reserves Aren’t “Inventory” ($).
I also joined my friend Skanda Amarnath on Bloomberg’s Odd Lots podcast in June (here) to discuss the theory and practice of a more active SPR strategy and more recently debated the idea on the MacroVoices podcast in November (here).
Now, back to your regularly scheduled Friday wrap-up!
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—highlights now included in the free summary.
Become a paid subscriber today to view the full Oil Context Weekly report and join me in my hunt for ever-deeper oil & gas market context.
If you’re already subscribed and/or appreciate the free chart and summary, hitting the LIKE button is one of the best ways to support my ongoing research.
Flat Prices spent most of the week rallying only to get slammed lower in a Friday rout driven by concerns regarding the unchecked and increasingly deadly COVID wave washing over Beijing; Brent crude closed the week around $79/bbl, up ~$3/bbl off last Friday’s close but ~$4/bbl lower than the Thursday high.
Calendar Spreads were the most promising signal of crude strength week-to-Thursday: prompt spreads moved from a $0.50/bbl contango last Friday to flipping intermittently back into backwardation by Thursday, but those gains were completely erased by Friday’s selloff; more promising, the Jun23/Dec23 bellwether spread also climbed higher through the week but has managed to hold onto most of those gains.
Inventories data was bearish across the board this past week with a big build in the US (+14 MMbbl), a moderate build in ARA Europe (+1.5 MMbbl), and essentially no change on the week in Singapore (-0.03 MMbbl); US total petroleum builds were the largest since early July while the large crude build (+10.2 MMbbl) was the largest since March 2021.
Refined Products showed further tightness this week, with New York Harbor diesel crack spreads rising from around $40/bbl at the end of last week to a high of more than $56/bbl on Thursday before easing off to around $52/bbl at the time of writing.
Positioning data confirmed further speculative selling in the week through Tuesday (-1.3 MMbbl), with 7.3 MMbbl of fresh short positions overwhelming the 6 MMbbl in long purchases. As a share of total open interest, the net speculative position fell 0.3 percentage points to 6.16%, a fresh low since the 5.98% reached in early August.
SPR Refill, finally! The US Department of Energy announced plans to refill the Strategic Petroleum Reserve (SPR), now seeking offers for 3 million barrels of crude to be delivered to the SPR in February—while far less than the more than 200 million barrels sold through this emergency release cycle, this “pilot” repurchase is the first step toward a more robust and flexible repurchase program.