How to Price Before a Reprice? | S6 E 28

World of Oil Derivatives

We saw a very strong performance in crudethis week, with Brent futures already up to $84/bbl. The team discuss market dynamics, emphasizing the shift from deep contango to backwardation in crude structure. After a recent positional reset, the market appears more balanced, with summer demand looking healthy.

The team go on to discuss the history of repricing in the oil markets, with Greg noting that big market moves often come from unexpected events. For example: recession expectations in the past were priced in, which actually ended up preventing their occurrence. Similar dynamics apply to oil markets, with Q3 summer bullish expectations unfulfilled due to extreme positioning, highlighting that major moves only happen with significant shifts in market sentiment and the largest profits often come from low-volatility markets with high prices.

Looking to the refinery margin, the crude flat price has increased, supporting the products outright but European gasoline remains a cause for concern. Cracks and spreads have had a massive sell-off over the past two weeks after loads of stop-outs in the European gasoline market. It has created a snowball effect, as players have become quite hands-off in Europe, in particular. The unexpected sell-offs are moving the market in an unexpected (by some) way into summer driving season.

Macro specialist James Brodie says this week the market is reacting to lower CPI, PPI and a very weak consumer sentiment reading. However the U.S. Federal Reserve surprised the market with a hawkish statement, but the bond market disagrees, and is pricing in more aggressive rate cuts by the central bank.
Chapters for this episode are:
0:00 Welcome
0:40 Brent Futures
11:38 Macro market news
16:38 Refinery margins & market psychology
44:14 Petrodollar
46:00 Trade idea of the week
49:44 Poll results and outro