Caution, Caution, Caution!

With the latest oil price pullback happening, the bottom still appears to be elusive. As we wrote in our Wednesday OMF titled, "Follow the Process (Part 2)." The signals we use to gauge the direction of the oil market remain bearish. What's incredibly frustrating/alarming to see is that those very same indicators have not turned even remotely neutral.

If you have been waiting for a signal to turn bullish, now is NOT the time.

Bearish Physical Market

Refinery run-cuts are happening in Asia. Oil traders familiar with the situation are pointing out to us that some refineries have already started this. Oil Bandit, a fantastic follow on Twitter, just tweeted today about South Korean refinery GS Caltex marginally cutting throughput by ~15k b/d due to low margins.

Source: Oil Bandit

And looking at the conventional 3-2-1 crack spread, things are not any better.

The combination of weak refining margins and run-cuts is prompting Brent timespreads to meaningfully pullback.

The familiarity of this pullback reminds me of the one we saw in October 2023. While I could argue that energy stocks will not exhibit the same degree of drawdown in the coming weeks, it's definitely not a time to be bullish.