WTI breached $80/bbl today on the back of 1) continued panic in the physical market from Chinese oil traders, 2) inventory draws in the US with commercial crude storage sitting near multi-year lows, and 3) weak implied US oil production.
The physical market continues to dominate oil trading for now with Chinese traders frantically trying to replace sanctioned barrels from Russia and Iran with alternatives. Floating storage in China is starting to pile up as the US sanctions the dark fleet. And because of the visibility of these tankers, it will take time before they go offline, conduct ship-to-ship transfers, and offload the crude.
In the meantime, traders are trying to find replacements for these, and we are seeing the panic in the crude timespreads.
Source: Barchart.com
How long will this last? I don't know and the only way we know it's getting close to the end is by paying attention to the timespreads. Once crude timespreads peak, that's when you know the frantic buying is over, and oil prices will correct lower. In the meantime, oil fundamentals are trending bullish and in-line with our projections.
A Good Start
IEA published its latest oil market report today and true to its bias, it still projects a massive surplus for 2025.
Source: IEA
This will be the first time in history where the 1-12 month crude timespread shows a material backwardation, while the IEA expects that large of a surplus.
Source: Barchart.com
This is why readers need to pay attention to what the market is saying versus what these biased energy agencies are saying. It's clear from the physical market that the implied balance is much tighter than what's on paper.