Technical indicators showed the major futures contracts falling into oversold territory on the back of a waning geopolitical risk premium and poor sentiment out of the US which exacerbated the sell-off. Bollinger bands have widened, indicating a sustained increase in volatility, whilst the lower band is providing technical support to price action.
In correlations, we see positive correlations between crude and RBOB with both contracts weakening in tandem. On the other hand, there was an inverse correlation between crude and distillate contracts on the week.
The WTI/Brent spread saw an interesting shift with the forward curve moving into contango, with WTI weaker than Brent in the prompt, whilst strengthening against Brent in the deferred. With the flat price sell-off shifting the entire Brent forward curve lower, the deferred WTI/Brent may have retained some support.
ETF flows highlight bearishness in USO, where the put/call ratio clocked in a 5% increase w-o-w. UCO flipped from net bull to net bearish sentiment over the week but still saw call OI rise relative to put OI. Finally, the ultrashort SCO saw significant bullishness into May – perhaps over the sell off in crude on May 01.
The June European refinery margin in the week to Apr 26 softened by 43c/bbl to $6.56/bbl, as the sell-off in refined products exceeded the weakness in crude. The main culprits were gasoline and gasoil, where weaker fundamentals was magnified by the selling in US futures.
In currencies, the USD continues to trade sideways, with bearish US labour market data and a stubborn inflation outlook garnering resistance and support for the currency. Still, the dollar fell to a four-week low this past week and despite correcting higher, it ultimately clocked in a w-o-w decline.
Implied volatility across out-of-the-money put options has risen far above call options amid traders holding a bearish outlook of crude.
