Diesel cracks under pressure while crude eyes price gap

Before then the market will continue to worry about the risk of recession and its impact on demand, a concern that is currently playing out in the diesel market, a fuel which powers heavy machinery such as truck and construction equipment. As per the chart above, refinery margins for diesel remains under pressure across all regions and if continued it may lead to lower refinery demand and with that lower demand for crude oil. 

Later today, the EIA will publish its weekly crude and fuel stock report and if last night's report from the American Petroleum Institute should be repeated, we could see a price supportive drop across crude, gasoline and distillates. In addition, traders will be watching gasoline and distillate demand which have recently been moving in opposite direction. Will crude oil production finally be adjusted higher above 12.3 million barrels a day and will Cushing continue to see declines as refinery demand picks up ahead of the summer driving season. The latter together with the OPEC+ cut recently supported a tightening of the WTI prompt spread which briefly moved into backwardation following a prolonged period of contango where the spot contract was trading below the next. 

Managed money activity in the week to April 11.

Buying of crude oil moderated during the reporting week following a massive buying spree in the previous week that followed the surprise OPEC+ production cut announcement. Having bought the biggest number of contracts or lots (136k or 136 million barrels) in a single week since December 2016, speculators turned more cautious. Overall, it’s worth noting that the 158k lots (158 million barrels) buying in WTI and Brent post the OPEC+ cut was split almost evenly between 85.6k lots short covering and 72.5k lots of fresh longs. However, considering all of those longs are now under water, the risk of a non-fundamental technical driven long-liquidation phase has risen. 

After not breaking key resistance in the immediate aftermath of the OPEC+ production cut around $89, Brent crude oil now trades back below $83.50, thereby raising the risk of a technical correction to $80 in order to close the gap that was left open following the April 3 jump. Before then some support may manifest itself around $82 where the 21- and 55-DMA meet. In WTI a similar sell signal has not yet been triggered with the price still holding above $79.