Looking for the Bottom
Are we done with the selling?
The short squeeze was more than likely due to extreme short positioning and overall bearish sentiment, Brent is back 5 dollars after bottoming out and holding steady. What changed in the physical markets in the last few days? Not much, in fact, while oil was selling off sharply most of the industry was in Singapore attending APPEC, “THE” oil event, so logically the number of cargos changing hands were below average. But this week they are back and in the West of Suez and they are buying some.
The curve structure regained some backwardation, which paints a different picture for this oversupply doom we are hearing.
Price action is in pause, pretty much like all markets awaiting FEDs decision, 25? 50 bps? does it change anything for oil? a 50bps cut would definitively help to boost dollar nominated commodities but looking at the DXY much of it is already priced in, so don’t hold any hopes in there.
As a consequence of the sudden sell off market was quick to react and rumors about run cuts are already materializing in the Meds and in the US.
For the US is interesting to see Low Sulfur Fuel Oil cargos departing from the USWC to Asia.
Declining gasoline and diesel prices, particularly following the peak U.S. summer driving season, has led to reduced margins for U.S. fluid catalytic cracking (FCC) units and cokers that processes Fuel Oil to further extract more valuable products like diesel and gasoline. As a result, refiners have less incentive to operate their secondary units at full capacity, though primary units remain active. The Asian VLSFO market has experienced a strong recovery, driven by supply constraints and increased buying from Chinese firms due to tighter export quotas.
The HSFO market also remains robust compared to last year, with cracks 30% higher as bunker demand for HSFO continues to exceed expectations. Additionally, Middle Eastern utility demand for HSFO has persisted into the first half of September, fueled by record-breaking summer temperatures, which has in turn supported the rare arbitrage of shipping fuel oil from the U.S. to markets east of the Suez. Singapore Fuel oil inventories were the lowest in 3 months.