Note: This article was first published to subscribers to HFI Research. This is part of our new daily report on the fundamentals of the oil market.
Oil prices are now in decline as Brent underperformed the WTI and narrowed the Brent-WTI spread. Today's move seems to be speculators holding long positions in the OPEC + JMMC meeting. In the case of surprises, speculators keep as a precaution. At the macro level, the trade war between China and the US seems to be tightening, leading to lower risk appetite for those who rely on oil prices.
In the physical market, however, the divergence continues with the Brent 1
321 Crack spreads against WTI
Source: CME, HFI Research
321 Crack spreads against Brent  Source: CME, HFI Research
As you can see from the diagrams above, the physical oil market remains healthy despite concerns about the most important macros. Whatever the financial speculators do today, the physical oil traders totally ignore this. For the US market, we know that unplanned downtime continues to dampen US refinery throughput, resulting in crude oil deposits last month. However, this will change over the next few weeks as 321 crack spreads point to higher refining runs.
Another key figure that we are following closely is global oil-on-water. this has reached the lowest level in the last 3 years. The decline since the beginning of May is due to a sharp decline in Iranian crude oil exports, which set tanker tracking services at ~ 500,000 b / d. Logistical problems will limit Iranian exports in the short term, but we do not expect them to continue in the future.
However, this confirms the appetite of the physical oil market for crude oil, as a shortage of oil on water worldwide means fewer deliveries. As global refineries soar into the summer, the situation on the physical oil market will continue to worsen, eventually leading to higher financial oil prices. We believe that algae and energy investors are aloof until they see signs of withdrawal, especially in the US. As soon as the US inventory declines, fund flows return.
We remain a long time traded on UWT trades, holding to a price target of $ 69 to $ 70 / barrel. The steep backward movement in the Brent period suggests that we are experiencing the largest crude oil decline since 2011.
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Disclosure: I am / we are long UWT. I wrote this article myself and it expresses my own opinion. I can not get any compensation for it (except from Seeking Alpha). I have no business relationship with a company whose shares are mentioned in this article.