From OilPrice, July 10:
- Bears and bulls are butting heads over the current state of the oil market.
- There’s a growing disconnect between the physical market for crude and oil futures.
- The ongoing disconnect between physical crude and futures markets can mainly be pinned on worsening fears of a serious economic slowdown that might curtail oil demand.
A couple of days ago, Saudi Arabia shocked oil punters after it hiked oil prices for its biggest market, Asia, in the middle of one of the biggest oil crashes this year. State producer Saudi Aramco hiked its key Arab Light crude grade for Asian customers by $2.80 a barrel from July's level to a premium of $9.30 a barrel over the regional Oman/Dubai quotes, bringing it just shy of the record $9.35 a barrel premium seen in May.
Aramco claimed that it has continued to see robust demand for crude from customers in Asia--the country's biggest market--as well as extremely strong refining margins.
The increase in the country's official selling price (OSP) came just hours before the futures market went into a tailspin, with Brent and WTI both crashing nearly 10% on Tuesday. Indeed, benchmark Brent futures have slumped 11.3% just two days after the price hike, ostensibly on weak demand and recession fears.
On a certain level, Saudi Arabia's 'mad' decision to hike prices in this environment appears to make sense.
After all, refining margins have gone amok, with the profit from making a barrel of gasoil at a typical Singapore refinery hitting an all-time high of $68.69 on June 24. Although the margin has since retreated to $41.80 a barrel at the close on Wednesday, it's still almost 4x higher than the $11.83 at the end of last year, and a staggering 550% above the profit margin at the same time in 2021.
But the fact that the physical market for crude (bullish) doesn't seem to match the futures market (bearish) suggests there is a serious disconnect between the two....
....MUCH MORE
