An Interesting Development Is Happening In The Oil Market

Over the last 3-months, we warned time and time again that it was foolish for market speculators to fight the Saudis. To make matters worse, oil positioning got so skewed to the downside that it became all but too apparent that prices were set to squeeze higher (Oil Is Asymmetrically Positioned To The Upside). 

Fast forwarding to today, WTI is sitting at $83/bbl and Brent is at $86/bbl. And as prices continue to rise, everyone will start to ask the question, what does China do with its SPR?

As we noted in our "Don't Fight the Saudi" reports, we pointed out that China will likely use its surplus reserves to fend off escalating prices. But the latest physical oil market development is pointing to the opposite conclusion. China is buying.

There are a few ways we can decipher what the Chinese are doing. 1) We can pay attention to the physical spreads and 2) we can watch the discounts offered on the sanctioned barrels.