Has the death of the oil-bull been exaggerated?
In the wake of last Thursday’s surprise announcement from the IEA, the forward curve of the Brent market has been turned on its head, literally. At the same time, sweet/sour diffs have collapsed.
In the five days leading up to the June 08th OPEC meeting, dated Brent averaged a $6.73/b premium to Dubai crude. Over the five days following OPEC’s no decision, the dated Brent/Dubai diff moved out to $7.57/b; presumably on the assumption that the Saudi’s would begin dumping (Dubai-spec) oil onto the market. Not surprisingly, the spread then collapsed after the IEA pledged 60 MMbbls of Brent-spec product to the market. Last Frida,y the diff bottomed out at $2.33/b.
With the inversion in the Brent futures curve and the narrowing in the sweet/sour diffs, advocates of the IEA’s decision are already taking a victory lap.
This strikes us as a bit premature.
With last night’s 92.89 settlement on the NYMEX, is now closer to last Wednesday’s 95.70 high print (the session prior to the IEA’s surprise release) than to Monday’s 89.61 (post IEA) low print. On the other side of the Atlantic, last night’s close in ICE Brent futures, 108.88, was closer to last Wednesday’s 114.48 high print than to Monday’s 102.28 low print.
Bottom line, the IEA’s artificial (not to mention, unsustainable) stimulus is by no means a panacea. In fact, the euro €/dollar $ cross is now testing resistance around 1.4455, as illustrated in today’s issue of .
Should dollar bulls fail to defend this level, then regardless of how many attempts the IEA makes at manipulating prices, oil will head higher.
Stephen Schork is the Editor of and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.