Oil commentary - 12 April 2022

Morning all. Brent is trading this morning at $101.28 up 2.80 and WTi is trading up 2.90 at $97.19.?You know, a friend said to me yesterday "$100 Brent is soooo yesterday". Then this morning same friend said, "Sub $100 crude is soooo yesterday". Yesterday Brent hit a low of $97.57, this from a high earlier in the day of $103.30 before settling at $98.48. It seems like $100 is going to be where we pivot for a while, I think but, if I'm honest, I'm not sure exactly why. I offered a few opinions yesterday as to why oil prices have come off the highs of $140 we saw only a few weeks ago. But when I look at the headlines, I can't help but feel that prices should be higher. Is the market now that frightened of COVID again? It does seem that China's zero-COVID policy is here to stay, thus reigniting demand concerns owing to the pandemic but, in my view, the concerns around supply outweigh sporadic, yet large scale granted, lockdowns in China. Let's look for a moment at what has happened not just in terms of flat price but in the structure of the Brent futures market, because it really is, quite extraordinary. On the 7th March the spread between June and July Brent futures was trading 4.95 backward. So, it was 4.95 higher in June for a barrel of Greta's favourite liquid than it was in July. This was down to the fact that the market was pricing (pricing in a panicked way I hasten to add) that the world was facing a supply crisis owing to the fact Russian oil would be persona non grata. Where is that spread today? It's worth 15 cents. 15 cents! I wouldn't be surprised, and this is purely down to current sentiment, if front Brent structure turns negative this week, or contango as we oil geeks like to phrase it. That is a remarkable turnaround but, as I said above, I would argue that the issues around Russian oil being accepted in the market, are worse than where they were on the 7th March and Mr Barkindo agrees with me - "We could potentially see the loss of more than 7 million barrels per day (bpd) of Russian oil and other liquids exports, resulting from current and future sanctions or other voluntary actions,"…" "Considering the current demand outlook, it would be nearly impossible to replace a loss in volumes of this magnitude.".?Now, this is all speculative of course, but if the leading headline is concerns about demand dropping off then is it by 7mn bpd as Barky says above? I think not. I think the market has come off as the global SPR releases have eased concerns but again, that is only the equivalent of 3mn bpd.?"Only". I would also hazard a guess that once the EU can collaborate on an agreement on what to do regarding importing Russian energy there are traders in the background saying "0.15 for the front brent structure? Cheap!?Mineeeeee". Keep your eye on that front spread and, of course, on the headlines. Lates.