Analys
Relief rally and saber rattling, but bearish selling pressure is set to return


Oil contracts are having a 10% relief rally today as Monday’s price crash moves away. It was predominantly the small investors who lost their shirts and not the professionals. Market now feels it has good time to exit long positions in the WTI June contract and thus avoid a repeat of Monday when the June contract is set to expire. The relief rally is helped by Trump’s saber rattling with Iran but that is a sideshow in our view. The oil market is still running with a solid surplus and inventories are building by the day. Bearish selling-pressure is likely to return and longs in the WTI June contract should not be too comfortable.
The Brent crude June contract is trading up 10% this morning at $22.4/bl which is an increase of 40% versus the low point for this contract yesterday at $15.98/bl.

It is now becoming clear that it was all the small investors who have rushed in and placed their money in long oil ETFs who lost their shirts on Monday. The professional oil traders however know what to do and took home the victory and cashed in on the event.
The crash on Monday was a combination of technicalities (if you take a WTI contract to delivery you get physical delivery), close to full inventories in Cushing Oklahoma and financial positioning in the run-up to the very last days of the existence of the May contract.
The market is now trading higher in relief knowing that it is almost a full month until the WTI June contract is set to roll off. This gives the market plenty of time to exit this contract long before we get to the very last day of trading on 19th May. I.e. the market will avoid a critical squeeze for the June contract on the 18th and 19th of May comparable to the one which pushed the WTI May contract to minus $40/bl on Monday.
The open position in the WTI June contract stood at 582 million barrels at the end of Monday. Since then there has been an exit of almost 100 million barrels per day. So, at the end of yesterday the open position was reduced to 382 million.
When the WTI May contract started trading Monday morning there was still an open position of 109 million barrels, and it was an exit of 96 of these on Monday with no bids to be found which sent the May contract down to minus $40/bl.
The current 382 million barrels of open position in the June contract will thus be reduced to almost nothing in good time before the contract expires. But the exit is not going to be on a continuous declining path because it is to a large degree dictated by rule-based rolling of ETFs. The next major roll by oil ETFs is set to take place around the 8th of May.
The market now has a relief rally as it is likely to avoid a repeat of Monday’s event also happening for the June contract at least in terms of the most extreme parts of that event.
It is however important to remember what is underlying it all: A large surplus which is still running high. Inventories around the world thus continuous to fill up as we speak. This is making it harder and harder and more and more expensive to store the next surplus barrel every day.
The open June position has now been reduced to only 382 million barrels. It still feels like the long side of this open position is caught in a trap even with time on its hands. The exit of 200 million barrels in the June contract over the latest couple of days took place at extremely low prices and at extreme distress and inventories in Cushing Oklahoma are just getting fuller and fuller by the day.
While we are having a relief rally of 11% to $15.4/bl in the WTI June contract today it is still only trading $3.8/bl above its low-close on Monday of $11.57/bl.
Oil producers in the North Sea with still un-hedged June and July production might take the opportunity of the current relief rally to hedge their production with the June and July Brent contracts.
Analys
Crude stocks fall again – diesel tightness persists

U.S. commercial crude inventories posted another draw last week, falling by 2.4 million barrels to 418.3 million barrels, according to the latest DOE report. Inventories are now 6% below the five-year seasonal average, underlining a persistently tight supply picture as we move into the post-peak demand season.

While the draw was smaller than last week’s 6 million barrel decline, the trend remains consistent with seasonal patterns. Current inventories are still well below the 2015–2022 average of around 449 million barrels.
Gasoline inventories dropped by 1.2 million barrels and are now close to the five-year average. The breakdown showed a modest increase in finished gasoline offset by a decline in blending components – hinting at steady end-user demand.
Diesel inventories saw yet another sharp move, falling by 1.8 million barrels. Stocks are now 15% below the five-year average, pointing to sustained tightness in middle distillates. In fact, diesel remains the most undersupplied segment, with current inventory levels at the very low end of the historical range (see page 3 attached).
Total commercial petroleum inventories – including crude and products but excluding the SPR – fell by 4.4 million barrels on the week, bringing total inventories to approximately 1,259 million barrels. Despite rising refinery utilization at 94.6%, the broader inventory complex remains structurally tight.
On the demand side, the DOE’s ‘products supplied’ metric – a proxy for implied consumption – stayed strong. Total product demand averaged 21.2 million barrels per day over the last four weeks, up 2.5% YoY. Diesel and jet fuel were the standouts, up 7.7% and 1.7%, respectively, while gasoline demand softened slightly, down 1.1% YoY. The figures reflect a still-solid late-summer demand environment, particularly in industrial and freight-related sectors.


Analys
Increasing risk that OPEC+ will unwind the last 1.65 mb/d of cuts when they meet on 7 September

Pushed higher by falling US inventories and positive Jackson Hall signals. Brent crude traded up 2.9% last week to a close of $67.73/b. It traded between $65.3/b and $68.0/b with the low early in the week and the high on Friday. US oil inventory draws together with positive signals from Powel at Jackson Hall signaling that rate cuts are highly likely helped to drive both oil and equities higher.

Ticking higher for a fourth day in a row. Bank holiday in the UK calls for muted European session. Brent crude is inching 0.2% higher this morning to $67.9/b which if it holds will be the fourth trading day in a row with gains. Price action in the European session will likely be quite muted due to bank holiday in the UK today.
OPEC+ is lifting production but we keep waiting for the surplus to show up. The rapid unwinding of voluntary cuts by OPEC+ has placed the market in a waiting position. Waiting for the surplus to emerge and materialize. Waiting for OECD stocks to rise rapidly and visibly. Waiting for US crude and product stocks to rise. Waiting for crude oil forward curves to bend into proper contango. Waiting for increasing supply of medium sour crude from OPEC+ to push sour cracks lower and to push Mid-East sour crudes to increasing discounts to light sweet Brent crude. In anticipation of this the market has traded Brent and WTI crude benchmarks up to $10/b lower than what solely looking at present OECD inventories, US inventories and front-end backwardation would have warranted.
Quite a few pockets of strength. Dubai sour crude is trading at a premium to Brent crude! The front-end of the crude oil curves are still in backwardation. High sulfur fuel oil in ARA has weakened from parity with Brent crude in May, but is still only trading at a discount of $5.6/b to Brent versus a more normal discount of $10/b. ARA middle distillates are trading at a premium of $25/b versus Brent crude versus a more normal $15-20/b. US crude stocks are at the lowest seasonal level since 2018. And lastly, the Dubai sour crude marker is trading a premium to Brent crude (light sweet crude in Europe) as highlighted by Bloomberg this morning. Dubai is normally at a discount to Brent. With more medium sour crude from OPEC+ in general and the Middle East specifically, the widespread and natural expectation has been that Dubai should trade at an increasing discount to Brent. the opposite has happened. Dubai traded at a discount of $2.3/b to Brent in early June. Dubai has since then been on a steady strengthening path versus Brent crude and Dubai is today trading at a premium of $1.3/b. Quite unusual in general but especially so now that OPEC+ is supposed to produce more.
This makes the upcoming OPEC+ meeting on 7 September even more of a thrill. At stake is the next and last layer of 1.65 mb/d of voluntary cuts to unwind. The market described above shows pockets of strength blinking here and there. This clearly increases the chance that OPEC+ decides to unwind the remaining 1.65 mb/d of voluntary cuts when they meet on 7 September to discuss production in October. Though maybe they split it over two or three months of unwind. After that the group can start again with a clean slate and discuss OPEC+ wide cuts rather than voluntary cuts by a sub-group. That paves the way for OPEC+ wide cuts into Q1-26 where a large surplus is projected unless the group kicks in with cuts.
The Dubai medium sour crude oil marker usually trades at a discount to Brent crude. More oil from the Middle East as they unwind cuts should make that discount to Brent crude even more pronounced. Dubai has instead traded steadily stronger versus Brent since late May.

The Brent crude oil forward curve (latest in white) keeps stuck in backwardation at the front end of the curve. I.e. it is still a tight crude oil market at present. The smile-effect is the market anticipation of surplus down the road.

Analys
Brent edges higher as India–Russia oil trade draws U.S. ire and Powell takes the stage at Jackson Hole

Best price since early August. Brent crude gained 1.2% yesterday to settle at USD 67.67/b, the highest close since early August and the second day of gains. Prices traded to an intraday low of USD 66.74/b before closing up on the day. This morning Brent is ticking slightly higher at USD 67.76/b as the market steadies ahead of Fed Chair Jerome Powell’s Jackson Hole speech later today.

No Russia/Ukraine peace in sight and India getting heat from US over imports of Russian oil. Yesterday’s price action was driven by renewed geopolitical tension and steady underlying demand. Stalled ceasefire talks between Russia and Ukraine helped maintain a modest risk premium, while the spotlight turned to India’s continued imports of Russian crude. Trump sharply criticized New Delhi’s purchases, threatening higher tariffs and possible sanctions. His administration has already announced tariff hikes on Indian goods from 25% to 50% later this month. India has pushed back, defending its right to diversify crude sourcing and highlighting that it also buys oil from the U.S. Moscow meanwhile reaffirmed its commitment to supply India, deepening the impression that global energy flows are becoming increasingly politicized.
Holding steady this morning awaiting Powell’s address at Jackson Hall. This morning the main market focus is Powell’s address at Jackson Hole. It is set to be the key event for markets today, with traders parsing every word for signals on the Fed’s policy path. A September rate cut is still the base case but the odds have slipped from almost certainty earlier this month to around three-quarters. Sticky inflation data have tempered expectations, raising the stakes for Powell to strike the right balance between growth concerns and inflation risks. His tone will shape global risk sentiment into the weekend and will be closely watched for implications on the oil demand outlook.
For now, oil is holding steady with geopolitical frictions lending support and macro uncertainty keeping gains in check.
Oil market is starting to think and worry about next OPEC+ meeting on 7 September. While still a good two weeks to go, the next OPEC+ meeting on 7 September will be crucial for the oil market. After approving hefty production hikes in August and September, the question is now whether the group will also unwind the remaining 1.65 million bpd of voluntary cuts. Thereby completing the full phase-out of voluntary reductions well ahead of schedule. The decision will test OPEC+’s balancing act between volume-driven influence and price stability. The gathering on 7 September may give the clearest signal yet of whether the group will pause, pivot, or press ahead.
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