Blue Lacy Advisors, LLC - Oil Market Commentary
Minneapolis, MN | September 6, 2022 | By: Steve Sinos, Blue Lacy Advisors, LLC
Although nothing has changed week-over-week, crude oil and refined products prices rallied again off of lows that seem technically driven. In Brent crude, for example, the average strip has rallied each time it has closed below approx. $90. It might just be continued speculative volatility, as long traders appear to have returned from a short vacation; an additional ten traders established long Brent futures positions last week. Trends in physical trade, inventory changes, and associated spreads remain better signals of market conditions. Backwardation increased in all major petroleum products to month-long highs, with some of the comparative tightness in Europe versus the US reflected in the differing magnitude of backwardation between diesel/heating oil(“HO”) and gasoil. Gasoil's first month ended the week trading at about an 18% premium to the sixth month, while HO's first month was at a premium of just 11% to the sixth month on the close. Both products saw their crack spreads widen last week as well. Gasoil traded above $50 to Brent and HO $70 above light sweet crude oil (“WTI”). Trade movements offer more mixed signals as we approach September, but the market still seems relatively tight overall. The US has been balancing with exports at the expense of inventory, with the majority (>50% of all clean products and 80% of diesel) heading toward Latin American destinations. European destinations have seen an uptick in US diesel receipts in recent months. While the region makes up just 6% of all US waterborne diesel exports, the volume has risen to 95kbd, nearly tripling summer lows, driven by competition with LNG, expected use in winter, and ongoing fears of shortages of fuels for heating and electricity. This has caught the attention of the US administration.
Secretary Granholm recently urged refiners and traders to turn attention to domestic needs, but given the shape of the curve, width of spreads, and tight markets, her plea likely falls on deaf ears.
A free summary excerpt, such as this one, will be published on a delay periodically. This is an excerpt from Blue Lacy Advisors, LLC's (“Blue Lacy”) weekly commentary for clients, which is based on a collection of models, research/analytical subscriptions, and bespoke work. Each week Blue Lacy explores how market drivers included in these analyses might affect or be used in clients' planning, budgeting, and execution of strategy. Call Blue Lacy to make an appointment today!
Meet the Author!
Steve has spent his career in strategy, risk, trading, and investment. He works with investors to source investments in opportunistic or high growth sectors, with particular interest in early-stage companies solving clearly defined problems.
He is currently a Managing Partner with Blue Lacy Advisors LLC, giving management teams and investors confidence in their decision making by supporting strategic planning and execution, risk management, commodity trading, and market analysis.
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