As of close of business ICE Brent M1 flat price has lost $13.85/barrel in 7-working days. There is no point in listing all of the losses in the other derivatives that make up the futures complex, for they all tell of a similar path. Many of the oil fraternity in whatever guise such as producers, traders and commentators all stand around looking at each other searching for reasons why. Saudi Arabia and its many mouth-pieces that make up OPEC, along with a willing Russia, have caused quite the stir in volatility and hence the recent fall from grace of prices. Saudi beseech that their motivation is to restore ‘stability’ to oil markets, and let us be frank, by ‘stability’ meaning higher prices, but it has proven to be the very antithesis of such a goal and oil markets are now more unstable than at any other time since the start of COVID.

This is a distillate/product/margin-driven market and oil-watchers accept the seasonality and pressured refiner sector as causes for tightness and bullish thinking. Most would also accept, maybe not to the heights seen, that a relay rally evoked by the obvious relationship between distillate and crudes was an inevitability. However, the market did not need the agitation of what Saudi might or might do next and it would appear thinking has become blurred. The swings in the various forms of cracks lie in testimony to a broken relationship in price and arguably any bullish/bearish thinking from fund-like trading has disappeared from the distillate markets and is placed in crude futures. However, transient money now finds crude markets that are depopulated by oil-only trading and this can be evidenced by the decreasing volumes in time-spreads.

Overall volumes are still in decent order, but that is mainly due to the high frequency traders and the pivot in and outs in positioning of investment funds such as Commodity Trading Advisors (CTAs). Spreads on an ICE screen show a depth of volume, i.e, how many lots are on a bid or offer. In usual circumstances these bid/offers run into the many hundreds or even thousands and ordinarily indicated a healthy interest from the oil trade. Such depth has disappeared and with it the very ‘movement police’ that keep oil prices relevant to what might be occurring in the physical world. Therefore, with reduced volumes from ‘trade’ any sort of headline from the wider macro-suite will have an outsize influence, including today’s US non-farm payrolls, and why the market’s current oscillations are at times unfathomable. Whether Saudi take note of this oppositional outcome to its intentions will cause even more hand-wringing with which non-founded wire-whispers have alluded to recently.

Gasoline Remains Pressured by Demand

The recent performance of Gasoline prices, and take ‘performance’ to mean shellacking, leads to the notion that there is probably a collective sigh of relief from governments around the globe that must have been contemplating or even fearing a public backlash to elevated prices. In what seems a repetition of recent market behaviour, as crude prices nudge(d) up against $100/barrel, a much more acutely price-aware public tend to trim miles and drive less. In the summer of 2022, as Brent traded well over triple digits, the most informed oil watching populace of the United States adopted economies of travel and gasoline demand fell by just over 4% compared with the previous year.

Confirming this behaviour is recent data from the EIA and the fortunes of gasoline supplied/demand. The week ending 25 August 2023 saw gasoline demand at 9.068 million barrels per day with an M1 ICE Brent price of $84.48/barrel and 2-weeks later, on September 8, 8.307 million barrels versus $90.65 with ever-decreasing demand as Brent topped $97/barrel on 28 September and the next day the demand was down to 8.014 million barrels as published on Wednesday. It is too early to tell whether the dramatic slide in prices seen over the last few trading sessions will entice would-be buyers back and the RBOB futures contract is very, very oversold. However, this dip would need to show some elongation and for the moment implied demand is still very much shuttered. This week’s number of 8.014 million barrels is 0.605m down from last week, 1.451m down from last year, 0.974m below the 5-year average and the weakest (apart from the COVID years) since the 2000s.

It is well known and commented on that oil prices are a major political tool within the US, but the emotiveness caused by high oil prices receives due attention from other leaders such as President Macron of France. He was recently verbose about undue profits that oil companies are enjoying and with a political two-step sought to push blame squarely at the feet of the multinationals. No doubt the President had the civil unrest of 2018 at the forefront of his manoeuvring when the ‘gilet jaunes’ spurred into action by the price of crude and domestic fuels, championed the fight against the high cost of living and economic inequality. Interviewed at the end of September, Macron promised grants to the poorest car users and that he would request fuel retailers to sell at cost price. Such was the worry that according to Reuters there was even a contemplation of allowing retailers to sell at below cost level. In the US, with few bullets remaining in the chamber of SPR releases, and in France with windfall taxes on oil companies already applied, political hierarchies such as Presidents Biden and Macron must be secretly thanking US citizens’ frugal practices and the current market circumstances allowing them, at least for the time being, not having to handle the oil price hot potato.  
 

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