TD Securities strategists Ryan McKay and Bart Melek note that CTAs remain maximally long WTI Crude, Brent Crude, diesel and gasoline as attacks on energy infrastructure in Saudi Arabia and Russia sustain a significant upside risk premium. Supply risks remain elevated after Saudi Arabia's East-West pipeline was damaged, with reports indicating that much of the system could remain out of service for three to five weeks, while the threat of further Houthi strikes adds to tightening risks.
Pipeline risks sustain CTA long bias
"Upside risks across crude oil and products remain extremely elevated amid energy infrastructure attacks in the Middle East and Russia."
"CTAs remain max long across crude oil, diesel and gasoline markets, with only vol levels constraining positioning at this point."
"supporting an upside risk premium in crude oil pricing, while continued Ukrainian attacks on Russian refineries further tighten the diesel market."
"However, if repairs stretch beyond that, flow rates are materially reduced, or if further attacks occur, the market would tighten materially."
"The market has been much more balanced of late amid flows from the broader Middle East region hitting 80-90% of pre-war crude totals (including Hormuz, Gulf of Oman, Oman, Fujairah and Yanbu), alongside still reduced refinery runs, but the risks of continued attacks limiting supply, or a recovery in refinery runs as Chinese appetite picks up, have seen a risk premium remain priced in."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
