Judging by Friday’s finishing numbers week-on-week there is little doubt that the oil complex remains in a state of vulnerability as the M1 months in the major futures contracts finished; thus, WTI -$2.84/barrel, Brent -$3.04/barrel, Heating Oil -8.05c/gal, RBOB -7.13c/gal and Gasoil -$32.5/tonne. Such is the extent of the decline in prices from the highs achieved after the October 7 Hamas incursion into Israel that there has been an erasing of both the geopolitical fear spike and all the gains made after Saudi Arabia started on its protracted voluntary production cut that commenced in July. But what technicians have been fascinating over is that WTI and Brent have been skirmishing with their 200-week moving averages (covered extensively in our technical report) which as of Friday valued at 70.35 and 74.24 respectively, whether or not one believes this is a buying opportunity or a signal for a price rout is a matter of judgement and taste, they are only highlighted here to example the extent of oil’s fall from grace.

In times past oil markets look forward to this time of year as a period of reflection and planning, but such is the pace and relentlessness of market drivers that decision makers are not afforded the luxury of contemplation, trading fraternities are embroiled in the minute-by-minute all-consuming game of trying to find reasons that a certain spread moved 10c/barrel or flat price rallied $10/tonne, which inevitably leads to some vacating the theatre of operation and shuttering exposure. With ‘Oilie’ types and traditional traders adopting a conservative attitude the market then loses its ‘movement police’ leaving prices to the vagaries of trigger-happy, pivot-pricing flows that exacerbate a shared feeling of frustration.

There is little this week to believe that will change much. Strangely, and something that would never have been thought even a year ago, China is actually a consistent that can be relied upon but the Asian giant is a runner for the bears and not for the bulls anymore. On Saturday, the Consumer Price Index (CPI) dropped 0.5% in November from a year ago, worse than the -0.1% prediction and the biggest fall since November 2020. For all the feints of stimulus including promises of largesse from the PBoC last month of accommodative action in the economy, deflation has arrived and unless there is significant proven action emanating from the Politburo and the Central Economic Work Conference meeting coming up in December, China will continue to be a smother blanket rather than a supporting bolster.

As much as the monthly reports from the IEA, OPEC and EIA will be pored over for their differences, inflation will be on the lips of all markets this week as the United States publishes its November year-on-year CPI tomorrow at 13.30gmt. Forecasters are looking for an unchanged number of 4%, but any major difference will see large speculative swings trying to prejudge the Federal Reserve’s rate decision due 19.00gmt on Wednesday in which there will be a likely hold at 5.5%. The significance of these numbers will be a signposting for future decisions but more importantly, they do seem to be data that investors can lean on in world of somewhat fluid information reliability.

Confidence can only come from trust in information

One wonders if it was the passing of the great American stateman Henry Kissinger, apparently much admired by the Russian President, that inspired Vladimir Putin to emulate one of the former US Secretary of States’ famous tactics by embarking on his own ‘shuttle diplomacy’. With four fighter jets as outriders, the Russian leader flew into the UAE and then cobbled a pop over to Riyadh and conducted a back-slapping exercise with Saudi Crown Prince Mohammed bin Salman claiming the meeting ‘helped remove tensions in the Middle East’. Which tensions these refer to are deliberately polysemic, but the market doubts whether it was to do with Israel/Gaza and more to do with OPEC+’s internal strife.

For all of Russia’s subsequent assurance of more clarity in exports, which is a nigh on admission of dark practices, and a rallying call to all of OPEC to do their bit, there is little in OPEC’s members’ behavior to ease the market of its current malaise of hyper-scepticism and confusion. The recent OPEC fall in production in November by 90k barrels per day compared with October and an OPEC+ reduction by 130k, is then made moot in the eyes of a market that is used to obliging language and questionable compliance from the cartel’s members. Iran, as an example, continues to pump crude at record highs and, according to NewsBase, is making full use of its exemption from OPEC output quota limitations by producing 3.2m barrels per day in November which is the highest since 2018 when Iran again fell out of favour with the United States and sanctions were returned.

Frankly, with nation states’ energy security at stake one does wonder whether sanctions stand up to scrutiny, those against Russia have been applied in a manner of ‘let’s get our replacement ducks lined-up first’ convenience. Can it really be argued that those charged with enforcement against Russia have adopted a somewhat laissez-faire attitude? Full-blown-policed compliance would have had crude values over the previous 2 years running to triple digits and with the world stinging from high inflation, the damage to global economies would have been unspeakable. The other thing to consider is the ability for countries to bring to affect any sanction. In an excellent Financial Times opinion piece, the idea that the US-led G7 is capable of thwarting Russian oil exports is rubbished, ‘the G7 and EU aren’t big enough parts of the global economy, […] governments cannot muster enough control over global demand to choke off trade’, one only need look at the willingness of China and India as grateful recipients of any sort of Russian oil. Whether it is lack of intent or means, the efficacy of sanctions is again questioned as Russia’s economy seems to have shrugged off the worst of effects and have in some ways served only to muddy the waters of the oil balance.

Adding to a mistrust of anything in the market is a disparity when assessing US inventories and taking the example of the main US storage hub at Cushing, the week to December 1, TankWatch which takes measures from Geospatial Insight, saw a build of 415k barrels, whereas the EIA posted a build of 1.83m barrels a negative difference of 1.5m barrels; the week ending November 24, a positive TankWatch/EIA difference of 2m barrels and lastly; the week ending 17 November a negative TankWatch/EIA difference of 960k barrels. In a note to clients, TankWatch assured clients that there had been no change to their methodology but observed the recent systems upgrade at the EIA, when there was a delay in data and seems to have caused the variation in assessment and even the API data has run in discrepancy.

Indeed, Bloomberg also noted deviation in export data, for at the beginning of last week there were ship tracking data showing US exports about to notch record highs in the region of 6m barrels per day, but for the week ending December 1, the EIA reported exports as shrinking by 416k barrels per day. TankWatch went to offer a 3-week average between their data and the EIA was much more aligned which also chimed with Bloomberg charging the EIA’s data as ‘choppy’ but expected the difference in exports figures to smooth out over the next few weeks. Whether or not the faithlessness of the oil community is likewise smoothed out in the face of such bewildering drivers, language and behavior might have to be given a longer time frame.

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