Oil Price News: Tight Physical Market & Underpriced Iran Risk

WTI fell 3.4% w/w to $63.50, but that move masks a market doing two contradictory things at once:

• Paper is wobbling on macro noise and de-escalation headlines.
• Physical is screaming scarcity, especially for non-sanctioned barrels.

That divergence is where the risk lives. Oil slipped on the week, but the tape is lying. Physical tightness in mainstream barrels is real, Iran risk is underpriced, China is quietly warehousing crude at scale, and the biggest merchants on earth just showed their hand. This market is fragile, headline-driven, and one misstep in the Gulf away from repricing violently higher.

Many thanks to the boys in Newsquawk.com as always for the realtime breaking news and data.

Vortexa Signals Scarcity: Mainstream Crude Barrels Disappearing

Glut barrels landing into onshore storage is accelerating at pace now. I was of the mind these stocks would land somewhat into US storage. This has not been the case in the week past, with landings increasing everywhere but.

Global onshore crude inventories (excluding China) (bbl) Source: Vortexa

Sanctioned/Non sanctioned oil. Source: Vortexa

China and India Crude Buying: Storage Builds and Shift From Sanctioned Barrels

Bullish factors are in spades. China is now building out more onshore storage capacity. +80mb of new state-run storage, alongside +24 mb of other capacity and incremental refining throughput. China remains THE market buyer, with India a close second. The latter of which has greatly reduced its landings of Russian sanctioned oil. There is currently $5 of Iranian risk premium in the market to boot and things havent even gotten ‘Hot’……yet…….

Vitol and Total’s Brent Buying Spree: A Scarcity Signal

The signal some might take on as tightness of ‘mainstream’ oil last week, was Vitol and Total taking 17 of 20 tankers worth of Brent last week. This was the fastest pace of purchasing for them EVER RECORDED!

Source: Vortexa

Europe Energy Outlook: Germany Replaces Russian Gas With US LNG

Europe is having a what can only be described as a German led brain fart for the past 18 months to maybe 5 years. Germany has swapped Putin’s gas for Trumps, with increased Gas loadings crossing the Atlantic monthly. This sorry state of affairs only seems to be spiralling further downward, looking through to 2030. Anyone know any German regional gas production plays that are paid in Euro?? NRT 4.15%↑ ??

Source: Vortexa

Iran and Strait of Hormuz Risk: Why Oil Risk Premium Looks Underpriced

I covered a lot of this and the Straits of Hormuz in some depth in my report here. When we think of a closure of the Straits, there are many factors that have to be taken into account. History, logistics, pipelines, sea, ground and air warfare.

CFTC Commitment of Traders: WTI Positioning and Open Interest

Week on week, I have thought which would be best to constantly track on C.O.T changes. I could have a constant set of stats that I just update on- HOWEVER, if there are uninteresting changes, I would rather not even mention them. I only want to cover for myself and for anyone interested, the items that I see as interesting and compelling.

I see the argument for both, but I want to cut noise everywhere possible and only hunt signal or near term change from that signal.

All data is from an in-house proprietary C.O.T analysis tool. This is NYMEX CFTC data. It is not ICE or MIFID data.

• Open interest +55,665. Total 2,091, 314. 99th percentile. Look back 2yrs.
• Commercials Long +39,057. Total 879,932. 97th percentile. Look back 2yrs.
• Commercial Short +76,508. Total 1,032,431. 95th percentile. +8% WOW
• Non Comm Long +20,282. Total 315,529. 48.6 percentile. +6.8% WOW
• Non Comm Short -7,301. Total 190,964. 82.9 percentile. Look back 2yrs.

Since Jan 13th-Specs cut shorts by 16.3% (37k contracts) over 21 days.

WTI Commercial Hedgers: Rising Shorts at Elevated Risk Premiums

Commercials taking the op to hedge forward prices at these elevated risk built premiums. This cohort sells more the higher price goes, to lock in forward contract pricing.

Commercial Shorts on WTI.

A 1.98 standard deviation reading on commercial shorts.

WTI Specs: Longs, Shorts and Rapid Short Covering

Longs

Shorts

Trade Plan: Stay Long WTI, Buy Pullbacks Toward Yearly VWAP

Last weeks trade section aimed at covering the escalation/de-escalation scenarios. Talks did not yield anything last week and only resulted in Trump placing sanctions on 14 tankers and promising increased tariffs on any countries dealing with Iran. Net net? Stay long. Ride her till she bucks ya!

That said, I like buying things cheap and selling them expensive. I am not scaling into current highs and lifting my price average. I will add to this long should we have a technical pullback to Yearly VWAP. This is now confluent with QPVAH as of Fridays close. I would be surprised if we DONT trade there this week $60.91. Would this pullback be on a de-escalation headline? Who knows.

Should there be a headline perhaps that Trump says they are ‘making great progress’ etc and price drops, it would be a premature repricing out of risk and bulls should still hold for an Iranian response.

Okay oilers. That’s all I got this week. Stay tuned to the news flow as an escalation will get priced in faster than you think.