MBCC Trading Highlights 28th November'22 - Oil is down another 3% close to $80 while China is going down in flames, proverbially speaking...

The red line above shows the level of distillate inventories, and yes they HAD BEEN low, BUT as you can see the trend is moving higher, i.e. they are now building as refineries are maxing out on distillate products given the lucrative margins. This is what we had been saying for the past 1.5 months and why Oil prices would KEEP FALLING. Our dynamic cross asset model had been picking up weakness in physical markets which was / is not reflected by stale equity market bulls, who are still going on and on about inventories being BELOW 5 year avg. and world running out of Oil.

These type of sensationalist calls are futile as they don’t bother tracking demand, we do! And as you are seeing demand is coming in A LOT weaker than expected. Spreads only tell you what the situation WAS in the past, not what it CAN be.

Now with China certainly NOT reopening and in fact tightening measures given their 0 covid policy, riots are breaking out as people are fed up with restrictions 3 years of Covid, Xi Jinping is in a catch 22 situation because if he opens up the economy too soon, cases will rise and he will lose face on this 0-covid policy. But if he keeps putting people behind closed doors, demand is going to stay weaker. The PBOC announcing few trillions yuan of rrr cuts or monetary easing, is just to stem a leak of a much bigger damn, it is NOT boosting GDP or stimulating as such. Their GDP numbers of 4.5%-5.5% are nowhere close to being met, hence the small dribs and drabs of property loans to support the macro data.

Now, how much more do Oil prices need to fall? What can OPEC really do? Remember it was lucky that they were the only swing producers at a time when the world reopened post Covid and demand surged (not normal levels), but now supply is picking up everywhere and demand is falling!

Is there even one house out there that called/is calling for lower Oil?

We think it is important to separate the cyclical trade form the secular one, as that could have saved you 40%-50%!

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