Oil & Iran War Context Weekly (W15)
Crude prices collapsed following the announcement of an Iran War ceasefire, during which attacks have continued, to reopen the Strait of Hormuz, which remains closed; all eyes on weekend negotiations.
Happy Friday, Oil Watchers!
Every week, I summarize and analyze developments in flat crude prices, calendar spreads, high-frequency inventories, refined products, and positioning data, as well as a taste of the themes I’ve been thinking about or following closely.
Also a reminder that paid subscribers can access the latest weekly update of the detailed 40-page PDF Market Positioning Data Deck at the bottom of this report.
This week I joined the Loonie Hour (Video) and Shift Key (Podcast), and you can also find more of my thoughts about the evolving situation in the New Statesman (Print) and on CBC Power & Politics (Video).
On the latest episode of Oil Ground Up, I was joined by John Love, CEO of USCF Investments to celebrate the 20th anniversary of the United States Oil Fund (USO), widely considered the largest oil exchange traded product (ETP). We discussed the record backwardation in WTI, volatility parallels to April 2020, and US producers remaining cautious due to the inability to lock in high spot prices on the back end of the futures curve.
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Summary
Flat Prices collapsed by more than $14/bbl following the ceasefire announcement, marking the largest weekly decline since the start of the Iran War; Brent prompt futures (June delivery) are now sitting around $97/bbl while Dated Brent (spot) prices are sitting around $130/bbl after reaching an all-time high of $144.46/bbl on Tuesday, which outstripped the prior [nominal] all-time high set in 2008.
Timespreads pulled back sharply following the ceasefire announcement as prompt futures timespreads shed roughly half their backwardation; still, all major crude curves remain exceptionally backwardated and continue to scream for the release of any available inventories.
Inventories leaned bullish given a modest Stateside build and large draws across ARA Europe and Singapore; US crude stocks have reached high levels, concentrated around the US Gulf Coast, and are expected to begin drawing down more aggressively as empty tankers arrive to shuttle American barrels to Hormuz-starved importing regions; outside the US, inventory data is finally beginning to reflect mounting scarcity, especially of refined products.
Refined Products markets continue to signal that the greatest supply shortfalls are in middle distillates (i.e., diesel, gasoil, and jet fuel) but cracks did pull back notably after the ceasefire announcement (alongside crude); gasoline, meanwhile, remains relatively looser but crack spreads continued to climb despite the ceasefire news.
Market Positioning data revealed that speculators were small net sellers of crude futures and options contracts through Tuesday, though the sharp retracement of prices following the ceasefire—announced immediately after the end of the Commitments of Traders survey window—likely represents a considerable liquidation of what was excess speculative length.
As Well As Schrödinger’s ceasefire, the prospects for durable near-term peace in the Middle East, and what the future of the Strait and Gulf oil exports might look like.