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Trade Wars: It’s Time To Dial It Down A Bit

Remember when oil markets used to be driven by oil headlines? What quaint times. We used to write about things like Middle East supply outages, OPEC deals and crude backlogs in Cushing. We’d discuss the financial health of frackers, daily supply/demand balances, refinery maintenance season and monthly Chinese imports. It was all very last season. 2017 stuff. And in August of 2019 where trade disputes and inverted yield curves rule, it somehow feels passé.

Brent crude oil has tumbled about 20% since April and it’s hard not to credit the deterioration of US/China relations for much of the slide. While it’s true that daily supply/demand balances have turned bearish in the last few months, it’s difficult to imagine oil prices taking this sort of tumble in the absence of a negative macro backdrop. Crude production in Libya has dropped sharply this summer while Venezuela is producing just 760k bpd and Iranian exports have been strangled basically to 0 bpd. There are certainly some bullish spots in the crude market which physical traders have dealt with by keeping prompt Brent and US gasoline structure comfortably backwardated. This week the front 1-month Brent spread traded near +50 cents while the prompt 1-month US gasoline spread was near +11 cents, so perhaps it’s not all that bad out there. Nevertheless, these tight spots in the physical markets are being overwhelmed by macro and if you happen to be bullish on oil you certainly didn’t…




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