Oil Context Weekly (W42)
Crude prices crash back as Iran oil risks diminish while stubbornly stable term structure continues to point to capricious sentiment rather than realized fundamentals as the driver of price formation.
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Summary
Flat Prices fell ~$6/bbl for crude’s worst week since early September as Iranian oil assets reportedly dropped off of Israel’s retaliatory target list and the White House signaled that the death of Hamas’ leader was an “inflection point” for ceasefire negotiations, culminating in an unwinding of some of the early-October buildup in speculative length in major crude contracts.
Timespreads mostly held firm, trading sideways in stark contrast to the sharp rout in flat pricing; the comparative ambivalence of crude term structure through these recent ups and downs further supports the argument that recent oil price formation remains dominated by speculative sentiment, which is bouncing between Chinese demand concerns, OPEC+ rumours, and Israel-Iran headlines.
Inventory data was mixed but leaned bullish: continued US stock draws—with all major products drawing faster than the seasonal norm—set the tone while road fuel declines in Singapore mostly offset an equivalent crude build in ARA Europe.
Refined Products were split between gasoline treading water and diesel crack spreads weakening alongside crude; the pullback in diesel margins comes after a month-long rally that took crack spreads for the industrial fuel to nearly $20/bbl last week from $15/bbl a month ago, with this latest pullback erasing nearly half those gains.
Positioning data revealed that speculative participants were modest net sellers of crude contracts over the past week-through-Tuesday, though arguably less so than expected given the sharp rout in crude prices this week, which adds a further dollop of bearishness to the interpretation of this week’s price pullback.
As Well As the death of Hamas leader Sinwar, more colour on China’s shockingly rapid displacement of diesel with LNG in heavy trucking, Beijing pledges yet more stimulus, California loses another refinery, a new all-time high weekly US crude production data from the EIA (but weekly production data isn’t real!), and the IEA continues to see a long-plateau in oil demand based on current government policies.