Oil Calms as Bitcoin Braces for a Large Move

Oil

Since my last publication, oil has indeed dropped more than 20% within seven days of my sharing that I had taken bearish exposure through put spreads.¹

CME CL move following the previous issue.

As of now, my oil book is flat again, but I’m eyeing a few key events and price levels going into the coming week, which may result in some asymmetric opportunities.

Let’s start with the objective data, events and levels before I give my personal assessment of the full picture.

While physical tightness remains undeniable,² the risk-premium compression thesis I formulated in my last publication remains intact. Looking at the past month’s Copernicus imagery alone, we’re nowhere near seeing a cliff-edge drop. By no stretch of the imagination would I say that more than 10 million barrels per day are currently offline.

https://x.com/CRUDEOIL231/status/2086009442311794877

Importantly, satellite imagery provides only a narrow assessment of flows increasingly characterized by dark transits and alternate routes.

Yes, today’s very high crack spread is bullish evidence of product scarcity and refinery demand for crude, but it is not an unqualified bullish WTI signal. Given extremely high utilization and low inventories, it is nonetheless an important counterweight to a bearish WTI thesis. The 3-2-1 crack spread is above $60.³

Understand, as the previously cited Reuters commentary explains, that record crack spreads do not signal crude scarcity; they signal a shortage of refining capacity and finished products against a crude market materially better supplied than the product market. Think about this dislocation for a second and weigh it carefully against a purely bullish interpretation. The IEA describes exactly this divergence: crude inventories began rising while constrained Middle Eastern, Russian and Asian refinery throughput left products scarce. In other words, crude is accumulating because impaired refineries cannot convert it, while gasoline and diesel command scarcity premiums.⁴

Record margins incentivize every operable refinery to maximize runs and gasoline yields. That eventually rebuilds product supply, compresses crack spreads and removes the marginal bid for crude. Crack compression is bearish for crude when it is caused by products falling relative to crude.

Backwardation remains positive but has compressed substantially: M1–M2 is $1.03 and M1–M8 is $7.02.

All of this is to say: I’m flat because the overextension is not as evident as it was in my last issue, but I’m open to taking trades as the picture becomes clearer, either through events or flows alone—both physically and microstructurally. I’m willing to do business at the following levels.

CME CL levels and curve context.

Besides geopolitical developments, a key oil event to watch this week will be the EIA Weekly Petroleum Status Report on Wednesday. I’ll be watching crude inventories excluding the SPR, Cushing inventories, gasoline and distillate inventories, refinery utilization and inputs, production, imports, exports and products supplied.⁵

Bitcoin

Bitcoin has moved remarkably little since my last issue two weeks ago, with its 12-day and 25-day EMAs compressing tightly together for several days now.

CME Bitcoin daily structure.

Consequently, implied vol is historically low; I view it as cheap. As of August 9, BTC DVOL is approximately 34.4, with only seven of the preceding 366 daily closes lower—roughly the second percentile—while August 14-expiry ATM options imply approximately 27–28% volatility.⁶

My book is, admittedly, a bit more complex than I’d like it to be. What started as clearly long exposure via spot when I wrote my last note has turned into a more complex position consisting of spot used as margin, a substantial perp short and further upside protection via a call spread. This leaves my current book approximately delta-neutral and net long optionality. I’m happy with it, though it could have been expressed more cleanly had it not been the product of a longer-term thinking process.

As a directional move materializes, these are the Bitcoin areas where I’m interested in doing business.

CME Bitcoin near-term levels.

One thing I just cannot dismiss, however, is how few anomalies we have left behind to the downside on this slow grind up.

CME Bitcoin session TPO distributions.

Monthly VWAP is the one big level around 64k, overlapping with the weekly composite POC—the composite we just cannot seem to escape from over the past two months.

CME Bitcoin composite since June 1.

I think this composite offers a highly tradable level going into tonight’s cash open: the value-area high, at around 66k, which has kept price capped over that period. Breaking out of it decisively—which I expect to be much more of a process than an event—will be key to further upside.

The key events for Bitcoin to watch will be CPI on Wednesday,⁷ the U.S. Treasury 10-year auction on Wednesday and the 30-year auction on Thursday. For CPI, I’ll be watching headline and core month-over-month inflation, shelter, core services and revisions. For the auctions, I’ll be watching the high yield relative to the when-issued yield, bid-to-cover, indirect and direct awards and dealer allocation.⁸

Send any thoughts and questions to desk@confinia.xyz.