Note: This article was first published in the HFI Research subscriber. This is part of our new oil market daily report.
Oil prices are now retreating slightly, as Brent is weaker than WTI and reduces the spread of Brent-WTI. Today this move seems to be speculators, dumping long positions entering the OPEC + JMMC meeting. In the case of surprises, speculators take the precaution of being aside. While on the macro front it seems that the trade war between China and the United States is warming, which leads to a lower risk appetite for those who rely on oil prices.
But on the physical market, divergence continues, with Brent 1-2 spreading up, while Brent 2-3 remains unchanged during the day, despite the sale. WTI's weather changes are also improving, which may indicate that packets come in, although spreads are still in the counter, which is still an illustration that the US crude oil market remains over-represented.
321 spreads against WTI
Source: CME, HFI Research
321 Spreads against Brent
Source: CME, HFI Research
As you can see from the charts above, the physical oil market remains robust despite the major macroeconomic problems. Whatever the financial speculators do today, physical oil traders completely ignore. For the US market, we know that unplanned interruptions continue to reduce the productivity of US refineries, which led to the accumulation of crude oil last month. But this will change over the next few weeks as high spreads 321 show higher refinery levels.
In addition, another indicator we are tracking is global oil-to-water, which has reached the lowest level in the last 3 years. The decline in early May comes from the sharp drop in exports of Iranian crude oil, whose tanker tracking service is about 500,000 B / d. Logistics issues in the near future limit Iran's exports, but we do not expect it to move forward .
But this confirms the appetite of the physical oil market for crude oil, as the lack of oil on water simply means fewer supplies worldwide. As global refineries invade the summer, the situation on the physical oil market will become tighter and tighter, which will ultimately become higher oil prices. Our opinion is that the algorithms, together with energy investors, remain aside until they see evidence of the withdrawal of warehouses, but especially in the United States. As soon as US storage starts to decline, then the flow of funds will return.
For our UWT trading, we stay long and hold at $ 69 to $ 70 / bbl target. Brent's enormous lagging time tells us that we are about to see the largest decline in raw material since 2011.
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Disclosure of information I am / we are a long UWT. I myself wrote this article and she expresses my own views. I do not get compensation for him (except from Seeking Alpha). I have no business relationship with any company whose shares are mentioned in this article.