Oil Context Weekly (W52)
Crude finishes 2022 on a positive note, gaining ~$2/bbl on the week and ending the year with the Brent futures curve completely backwardated for the first time in nearly a month
Happy New Year’s Eve Eve! Keep your eyes peeled for a longer, more thematic review of oil in 2022 next week.
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.
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(Chart: Prompt Brent price; Source: Bloomberg)
Summary
Flat Prices weakened through the short week before prompt crude futures perked back up on the expiration of the moribund February contract and staged a final hour of 2022 rally to bring crude up to ~$86/bbl (Brent), ending the four-day stretch up ~$2/bbl vs last Friday’s close.
Calendar Spreads continued to improve and the Brent futures curve is now completely backwardated for the first time in nearly a month following the expiry of the stubbornly sour February contract; WTI curve remains slightly weaker with mild contango across the first and second contract months.
Inventories fell across all major trading hubs led by a large draw in the US (-11.2 MMbbl) followed by Singapore (-1.3 MMbbl) and ARA Europe (-0.2 MMbbl). Major trading hub stock levels are ending the year, generally, at the very low end of the seasonal norm; but, we are in a much more comfortable position than where they started the year, when levels were well below the previous bottom of that seasonal range.
Refined Products are broadly strengthening while chronically tight diesel mostly chopped sideways over the past week, caught between winter storm battered US refinery capacity losses and the expectation of a boom in Russian diesel exports ahead of the Feb 5th expansion of Western sanctions to cover Moscow’s refined product trade.
Positioning data revealed that hedge funds and other money managers were net buyers of crude futures and options contracts to the tune of 51 million barrels last week through Tuesday, more than doubling the previous weekly position increase for the largest nominal increase since August and helping spur last week’s strong price performance.
Keystone pipeline re-entered complete service on Thursday following a 3-week outage, which is notably longer than its previous two (2017/19) leaks; the market impact of this outage was materially lessened by the location of the leak and the capacity for a partial system restart well ahead of the final repairs.
Venezuelan crude will soon land on US shores for the first time in nearly four years upon the return of a tanker sent to the Latin American country by Chevron under a license granted in November.