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Oil Spikes On Supply Disruptions

Pipeline

Friday June 29, 2018

In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.

Let’s take a look.

Key Takeaways

- The massive decline in crude stocks added momentum to the price rally this week. The drawdown helped fuel speculation of a supply shortage.
- The surge in refinery runs helps explain some of the crude draw. But the modest uptick in gasoline inventories was a bullish sign, as it failed to offset the decline in crude stocks.
- The spike in crude exports also explains the crude stock draw. The WTI-Brent discount, which had widened to double-digits in recent weeks, meant that U.S. exports would likely rise. That has now finally showed up in the data. However, exports at such levels could be brief since the WTI discount shrank significantly over the past week.

1. Futures curve is the key

(Click to enlarge)

- The shape of the futures curve has historically provided some clues into where oil prices are heading.
- WTI in a state of backwardation tends to precede oil price rallies. Backwardation, in which front-month oil contracts trade at a premium to longer-dated futures, is a sign of tightness in the market. One way of interpreting those differentials is that the market is concerned about near-term supply.

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