Summary
Technical indicators showed the major futures contracts selling off at the end of last week, highlighting oversold conditions for Brent, ICE LS gasoil and RBOB – based on both the RSI and Bollinger bands for the latter two. In addition, we see Bollinger bands contracting in all three contracts, showing a decline in volatility across the barrel. Open interest also appears to be dropping in Brent, although it remains up but rangebound in the product futures.
In correlations this week, the US gasoline (RBOB) crack shifted from being negatively correlated to crude oil to positively correlated with Brent and Murban, and less negatively related to WTI. Additionally, while the heating oil crack and gasoil crack became more correlated, their correlation to RBOB cracks (RBBRs) flipped to negative.
The WTI/Brent forward curve shifted lower w/w, although it remains high relative to levels seen before the week ending 12 July. However, the Brent futures forward curve has also shifted lower w/w as market players continue to remove risk from the benchmark crude futures.
Over the past week, trading volumes for selected crude oil ETFs have been mixed, with significant fluctuations in flow in the USO and UCO ETFs. However, the ultrashort ETF SCO persistently exhibited bearish sentiment this week, with significant removals being 11.6k deltas on 15 July and 12.6k deltas on 19 July, both from call options being sold.
In the week ending 19 July, M1 refinery margins in Europe (NWE) and Asia fell by $0.50 and $0.27, respectively, to $5.35/bbl and $6.10/bbl. This softness emerged despite weaker crude in both regions, following acute weakness across refined oil products – especially gasoil. Gasoline, however, was also weaker as Europe lost its outlet to the New York harbor amid ample supplies and limited demand.
In currencies, the DXY dropped significantly on 17 July, following weak economic data out of the US, but climbed back to 104.35 on 22 July. As a result, the EUR/USD rallied to a multi-week high on 17 July but found pressure at this high. The Japanese yen saw strength on 22 July, with the USD/JPY at 156.47, following 03 July’s peak of 161.95.
Implied volatility has significantly risen in both Brent and WTI futures this week. However, this increase has been more skewed towards put option contracts than call contracts, signifying that players are willing to pay more against downward risk.
