Oil Context Weekly (W51)
Crude prices see largest weekly gain in nearly 3 months and futures curves broadly strengthen as Russian production cut threats prompt a trimming of excessive speculative short positions.
🎄 Programming Note: Commodity Context will be off for the holidays through next week until Friday (Dec 30th) when Oil Context Weekly will carry on as regularly scheduled. Merry Christmas to all those who celebrate and hope you all have a very happy holiday season.
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Flat Prices gained roughly $5/bbl to end the Christmas Eve week at ~$84/bbl (Brent), the best weekly price performance since the beginning of October.
Calendar Spreads broadly strengthened over the past week, with both Brent and WTI looking like they’ve begun to reverse the past month’s weakening trend that had been creeping down further and further down the futures curves; however, prompt crude spreads weakened with Brent heading deeper into contango and WTI flipping back into contango.
Inventories were again mixed this past week, with a big total commercial petroleum draw in the US (-11.6 MMbbl) offset by a notable build in ARA Europe (+1.2 MMbbl) and the largest build in Singapore since May (+3.7 MMbbl).
Refined Products strengthened on Friday on the back of news that the winter storm currently buffeting North America had taken roughly 1.5 MMbpd of refining capacity offline around the US Gulf Coast.
Positioning data showed a spec position bounce off of the extremely low levels reached last week, with net speculative positions rising by 23.1 MMbbl on heavy short-covering (-22.4 MMbbl) joined by a very modest increase in gross length (+0.7 MMbbl); as a share of total open interest, the net speculative position rose to 6.82% vs 6.16% last week.
Russia’s Threat that it would be ready to cut back production by 500-700 kbpd in early 2023 helped boost markets this week, but Moscow’s messaging has flipflopped between this cut being a finger in the eye of Western sanctions vs. calling the cut “insignificant” in apparent defensiveness regarding the effect of said price caps on Russia’s capacity to market its crude.
China Reopening rapidly after nearly 3 years of COVID-zero policy is going off terribly from the perspective of citizen wellbeing (likely hundreds of millions now infected) and near-term oil demand (cratering mobility), yet it remains to be seen if this mounting pressure on China’s healthcare system will push Beijing off its reopening priority and thus the impulse direction of Chinese petroleum product demand through next year.