Desperately Searching for a Bullish Narrative | S6 E35

World of Oil Derivatives

Although the market and the narrative want to be bullish, there's no impetus for it to be there. It's a weak week in Brent futures, after being within in touching distance of $88/bbl. We've seen both long and short prod/merc in Brent 200mb in 2 weeks in Sep 0I. The team explains why bearish economic data from China is adding to the pressure of oil prices.
Greg, James, Martha and Vincent discuss Iraq, Kazakhstan, and Russia having to submit compensation plans for exceeding quotas in 2024. The OPEC+ Joint Ministerial Monitoring Committee will assess compliance on August 1, and Iraq’s management and its relationship with the KRG are crucial for OPEC+ compliance and global oil stability. While this isn't massive news just yet, there's so much lying beneath the surface of this story, which is leading to people getting nervous on the producer side as a summer rally is yet to come to fruition.
The sentiment of extra supply is being supported by crude loadings from Guyana, which are planned at 21 million barrels, (or 700,000bb/d) in September, according to programs seen by Bloomberg. This daily volume will be a new record, compared with a revised 613,000 b/d in August. The July volume was also revised higher to 452,000 b/d.
Looking to macro news, there was disappointing data out of China with GDP 4.7% YoY (est 5.1%) retail sales 2.0% (est 3.3%). CPI 0.2% YoY, PPI –0.8%. House prices in China fell 4.5% YoY in June, the most in 9 years. U.S. prices 28bp cuts in September, 67bp cuts by year end. Weak CPI and the Fed is now concentrating on the weaker economy.
The team discuss Trump's impact on oil and suspect he will want to be bearish and take credit for lowering gasoline prices with a target range of between $60/bbl and $65/bbl, whilst simultaneously putting pressure on the central bank in hopes to restimulate the economy.
The trade idea for this weak is to buy heating oil. With such a heavy contango in the heating oil spreads it's a good risk reward-trade to buy. We're also seeing strong harvesting in corn and wheat, so if that continues, we'll most likely be seeing some more demand there.
Chapters for this episode are:
0:00 Welcome
0:52 Brent Futures, OPEC, and production
12:04 Macro market news
19:04 "Googling oil:" world oil news
24:33 Refinery margins
26:40 Trade idea of the week
30:29 Poll results and outro