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Crude Prices Diverge: Refiners Face Shortage
20 Jul
Summary
- Crude surplus and product shortage create a divergence in market prices.
- Futures-based ETFs face contango risks, eating into investor returns.
- Oil prices could reach $110-$120 if key shipping routes are disrupted.
Analysts observe a significant divergence between crude oil prices and refining product spreads. This split is attributed to a surplus of crude oil coexisting with a genuine shortage of refined products, rather than refining capacity directly influencing crude prices.
This market dynamic suggests caution for traders relying on broad commodity funds to navigate the refining crunch. Futures-based Exchange Traded Funds (ETFs) are also highlighted for their vulnerability to contango risks, which can negatively impact returns through persistent negative roll costs.
Forecasting crude oil prices involves a wide range of possibilities. A baseline scenario anticipates Brent crude between $80-$100 and WTI between $76-$95. However, disruptions near the Strait of Hormuz could push Brent to $100 and WTI to the mid-$90s.
In a more extreme scenario, a complete closure of the Strait of Hormuz could send crude prices soaring to $110-$120. Conversely, a de-escalation of tensions and normalization of trade flows might lead to lower prices, with Brent potentially falling to $75-$90 and WTI to $70-$85.
