Oil Context Weekly (W34)
Crude finally finds a bottom and begins to climb back from deeply oversold levels.
Happy Friday!
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.
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Summary
Flat Prices continued their decline until finding a bottom mid-week and then rebounding aggressively on Thursday through Friday, ending the week down only slightly at around $79/bbl Brent.
Timespreads fared even better than flat prices, with Brent prompt calendar spreads ending the week in steeper backwardation than they began; term structure proved far more resilient through this latest price rout when compared to equivalently low flat prices seen in early August.
Inventories data was mixed between a return to moderate draws in the US and builds across ARA Europe and Singapore; crude-derived US inventories look even more supportive given a relative surplus of LPG.
Refined Products remain comparatively weak when compared to crude, but while indeed lower than recent COVID-enflamed history crack spreads are still at the upper end of the pre-COVID norm and reflect both current demand weakness and a refined product market finally finding balance after years of disrupted operations and short effective capacity.
Investor Positioning data revealed that speculators were once again sizable sellers of crude contracts and confirmed that we remain in an exceptionally oversold positioning environment, with the inevitable rebound in net-speculative holdings expected to drive crude prices higher over the coming weeks.
As Well As Powell’s dovish pivot, Saudi fiscal breakeven oil prices continue to rise, Iraq and Kazakhstan increase compensation cut commitments following failure to comply with earlier commitments, Saudi Arabia’s mysteriously low June exports weren’t explained with latest official data for the period, and Enbridge’s toll cuts are a great reminder of the multi-facetted value of pipeline capacity expansion in Canada.