Rebecca Babin

The market is overestimating the speed of oil supply recovery and underestimating a future demand rebound. Supply returns have faced fits and starts, with Iranian crude overhang and SPR releases providing temporary prompt supply. Demand, particularly from China, is set to recover as they roll back product export bans and resume inventory rebuilding. The risk/reward at current prices is skewed to the upside, with WTI and Brent expected to reach $75-80 and $80 respectively by year-end.

Refined products face a tight supply situation with reduced refinery utilization, demand holding up, and no buffer stocks. US refiners are running flat out at 96% utilization, crack spreads are high, and this strength is expected to persist at least until late fall, keeping gasoline around $4 and diesel $5. Even if Hormuz flows resume, the Russia constraints add another tightening screw, preventing a quick reversion.

A shortage of global spare refining capacity, U.S. refineries running near 96% utilization, Russia banning diesel exports, and China refusing to buy inflated crude oil are keeping refined product prices high. This shortage will persist for months, while crude oil faces more supply flexibility, so the best trade remains long diesel and gasoline versus short crude oil.

A shortage of global spare refining capacity, U.S. refineries running near 96% utilization, Russia banning diesel exports, and China refusing to buy inflated crude oil are keeping refined product prices high. This shortage will persist for months, while crude oil faces more supply flexibility, so the best trade remains long diesel and gasoline versus short crude oil.