Glut 2.0

There is a glut and pump prices may still go higher.

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In this report: A crude glut, record refining margins, and why pump prices could still go higher. Trade setup for September and my machine learning/ neural net look at current positioning. Also printable 1 page COT report.

Last week. Brent -9.89% (-$7.97) Open $82.30 High $82.30 Low $71.93 Close $72.60

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Articles

• US strikes Iran for second day: Is it a violation of war powers resolution?

• UN pauses Hormuz sailor evacuations after “attack” in strait

• Supply Chain Stresses Starting to Emerge

• May 2026 — Monthly analysis of Russian fossil fuel exports and sanctions

• Don’t expect pre-war gas or airfare prices any time soon

• Coming soon-part 2 of ‘Trading the Energy Supercycle’. You can read part 1 here.

• Also an upcoming special report on The US SPR.

  

  Source: Apollo Academy Research- Torsten Slok

  

  Source: Vortexa

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View

There are many elements to cover as we have this ‘soft reopening’ of The SOH. We have seen high-traffic days on the 21st and 24th, with 14mb of crude transiting the strait on June 22 - the busiest day since March 1. Then the attack on UN escorted ships, Iranian dark-fleet vessels switching their AIS transponders back on, Indian imports of Russian crude hitting all-time highs, and plenty of other weeds we could crawl into.

I have serious doubts it lasts. At the time of writing, the US has struck Iran a second time in the last 48 hours, on the back of Israel de facto breaking the MOU with sustained attacks on Lebanon. The real trading and price risk here is more detailed than the headlines, and it all comes down to one question: higher or lower? As is with trading oil, there are no simple answers but I want front month oil exposure here. I think risks are to the upside. And like our lord and saviour Jeff Currie says, I want to 100% be exposed to the oil and gas names upside here.

There is something going on under the hood though that is way out of whack and this will probably setup a massive trade for September.

Oil is cheap and getting cheaper - down roughly 40% on flat price over the last two months. Refining margins though are at the highs. Those two things aren’t supposed to happen together. What is worse, is that we are in a situation where oil could be trading at $40 and the price at the pump could hit new all time highs. All within a 70% probability chance within the next 3 months.

So lets get into it.

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Crack spread

Crude is collapsing and refining margins are at the highs - at the same time. Those two are not supposed to be on the screen together. The 3-2-1 crack spread (below) is a measure of the refiners profit margin.

You don’t normally get both. Cheap crude and fat refining margins cancel each other out. When oil is cheap because there’s too much of it (like now), refiners run flat out to grab it. Refined fuel (products) flood the market too, and the margin gets competed away.

When margins are fat, refiners buy every barrel they can, drain the surplus, and crude firms back up. One always drags the other back to normal. Nothing solves low prices like lower prices. Basically something gets so cheap, it gets wider use again, then normalises back to the mean.

So seeing both at once - crude falling, margins at the highs - means the link between them has snapped.

Think of it like a bakery. If flour is suddenly dirt cheap because there’s a glut of it, you’d expect cheap bread too - the saving flows through to the shelf. What you’re seeing instead is dirt-cheap flour and bread at record prices, the baker pocketing the widest margin in years. That doesn’t happen unless something is jammed between the flour and the loaf.

wti fRONT SPREAD. m1-m3.

3-2-2 crack spread v WTI (blue) front month prices.

The dislocation