Oil Narratives
Oil Narrative
We've said, as have many others, that it will be months and weeks before normal supply chain is re-established, even were SoH to sustainably re-open with a low risk of re-escalation.
ICE Brent within $95-105/bbl range remains far too low in my opinion. Physical crude will remain a truer indicator of tightness, as will product markets. Divergence between paper and physical may continue for a while though. Physical crude is weaker now but is not guaranteed to remain so. Inventory draws are really only just getting started.
Flat price presents an interesting trading opportunity at some point down the line, if and when very short timescale headline risk calms down a little. Flat prices should be higher, as should cracks, vs today's levels (as of 21st April).
The draw on US oil inventory is getting started in earnest now. But far more is to come
SPR will provide "supply" to US commercial inventory but total stocks will be a better indicator of US tightness going forward.
Asia's demand for WTI is now huge and may steal market share from Europe.
Asia's demand for US oil products is also growing and will continue to rise as Asian run cuts accelerate over the coming months (current E/W spreads likely won't be maintained at these weak levels).
At some point US crude and oil product pricing will have to rise versus European and Asian equivalents, so as to increasingly defend domestic inventory levels. This might be more of a problem in late Q2.
