(WCTW) Oil's Dilemma - Stalemate

In a raging oil bull market, you will typically see 1) steepening backwardation (timespreads) and 2) rising refining margins. The last time this occurred was in May/June of 2022, but the rise didn't last as elevated refined product prices led to a slowdown in demand. In order to sustainably move prices higher, we usually need a combination of those two variables.

For the oil market today, we've come to a stalemate. With the Saudi/Russian voluntary production cut, crude is being squeezed higher, while product prices have come under pressure. This has resulted in downward pressure on refining margins. We wrote about this at the start of October and attributed lower refining margins to the tight crude supplies. But with refinery maintenance season coming to an end and margins failing to gain any reactions despite a $10+ drop in crude, we are going to see some refinery run cuts into year-end.