Continued declines in U.S. inventories, a bullish oil market outlook from the Worldwide Power Company (IEA), and damages on Russia’s Rosneft Ryazan oil processing plant by Ukrainian drones helped Brent crude to interrupt above the $85 per barrel stage.
That’s what Bjarne Schieldrop, the Chief Commodities Analyst at Skandinaviska Enskilda Banken AB (SEB), mentioned in a report despatched to Rigzone early Monday, highlighting that Brent crude gained 4.1 % final week with an in depth of $85.3 per barrel on Friday, March 15.
“This [Monday] morning Brent is including one other 0.4 % to $85.7 per barrel, pushed by a spread of extra assaults on Russian refineries over the weekend and optimistic Chinese language macro knowledge additionally exhibiting Chinese language obvious oil demand up 6.1 % yr on yr for Jan+Feb,” Schieldrop acknowledged within the report.
The SEB Commodities Chief famous within the report that “regular and continued declines” in U.S. inventories for the reason that begin of the yr have been “nudging the oil worth steadily increased” however added that “there has clearly been some resistance across the $85 per barrel stage”.
“U.S. inventories continued that decline in knowledge additionally final week with industrial crude and product shares down 4.7 million barrels. Whole U.S. shares together with SPR [Strategic Petroleum Reserve] declined 4.1 million barrels to 1,580 million barrels, which is now solely two million barrels above the low level on December 30, 2022, at 1,578 million barrels,” he added.
“These persistent declines in U.S. oil inventories is a transparent reflection of the worldwide market in deficit the place demand is sufficiently sturdy, cuts by OPEC+ are sufficiently deep, whereas U.S. shale oil manufacturing is near muted with hardly any development projected from This autumn-23 to This autumn-24,” he continued.
Further Enhance
Schieldrop acknowledged within the report that the month-to-month report from IEA final week “gave an extra increase to this image because it lifted projected oil demand for 2024 by 0.2 million barrels per day, lowered non-OPEC manufacturing by 0.2 million barrels per day, and thus elevated its estimated call-on-OPEC by 0.4 million barrels per day for 2024”.
“The world will want steadily extra oil from OPEC each quarter to Q3-24 and by This autumn-24 the world will want 0.8 million barrels per day extra from the group than it did in This autumn-23. That’s nice information for OPEC+. There isn’t a means that they’ll transfer away from present technique of ‘worth over quantity’ with this backdrop,” he added.
Schieldrop additionally famous within the report that “the Ukrainian drone assaults on Russian oil infrastructure has shocked the market, as lots of them are deep inside Russia”.
“Services in Russia’s Samara area which is greater than 1,000 km away from the Ukrainian border have been attacked on Saturday,” he added.
“We’ll doubtless not lose any oil provide, whereas we’d lose oil refining capability resulting from these assaults. A lot of the influence from these assaults ought to thus be on refining margins and never a lot on crude oil costs. However when diesel cracks, gasoil cracks, and gasoline cracks goes up then sometimes additionally mild candy crude costs goes up,” he continued.
“As such there’s a spillover impact from damages to Russian oil refineries to Brent crude oil costs even when we don’t lose a single drop of Russian crude oil manufacturing and provide,” Schieldrop warned.
The SEB Commodities Chief revealed within the report that SEB’s newest Brent crude forecast for this yr is $85 per barrel. Schieldrop warned within the report that this “implies that we’ll doubtless see each $70 per barrel in addition to $100 per barrel typically through the yr”.
Market Individuals Missing Conviction
In a separate report despatched to Rigzone on Monday, analysts at BMI, a Fitch Options firm, revealed that they’ve left their Brent crude oil worth forecast unchanged this month, at $85 per barrel for 2024.
“The front-month contract has been tightly rangebound during the last month, closing between $82-84 per barrel,” the analysts added within the report.
“Market contributors are missing conviction, with provide and demand-side dangers pulling costs in reverse instructions. Conflicting worth indicators will doubtless stay a function of the market in Q2, as mounting macro headwinds drag Brent to the draw back, whereas elevated geopolitical threat buoys it up,” they continued.
“We keep our view for stronger worth efficiency over the second half of the yr, as an improved macroeconomic backdrop bolsters sentiment and uplifts demand, whereas slowing U.S. manufacturing development and continued help from OPEC+ retains the reins on provide,” the analysts went on to state.
The BMI analysts highlighted within the report that OPEC+ “opted to rollover its present cuts from March till June 2024”, mentioning that the choice was “broadly in keeping with market expectations”.
“Headline compliance with the cuts stays sturdy, though efficiency varies extensively on the market stage, with a number of international locations – notably Iraq and Kazakhstan – far exceeding their February quotas,” the analysts mentioned within the report.
“Assuming we see some enchancment in international macros, there will likely be scope for development within the second half of this yr. Nevertheless, the group is unlikely to deviate from its earlier coverage prioritizing costs over manufacturing,” they added.
“In its newest communique, the OPEC Secretariat acknowledged emphasised that any unwinding of the OPEC+ cuts can be each gradual and topic to market circumstances,” they continued.
SC, EIA
In a report despatched to Rigzone on Friday, Paul Horsnell, the Head of Commodities Analysis at Commonplace Chartered Financial institution, mentioned, “oil market sentiment has improved considerably, with a few of the extra excessive demand fears dissipating”.
Horsnell revealed within the report that Commonplace Chartered thinks fundamentals justify costs above $90 per barrel.
In keeping with the U.S. Power Info Administration’s (EIA) newest quick time period vitality outlook (STEO), the group sees the Brent spot worth averaging $87 per barrel this yr and $84.80 per barrel in 2025. This can be a notable improve from the Brent spot worth forecasts within the EIA’s earlier February STEO, which got here in at $82.42 per barrel for 2024 and $79.49 per barrel for 2025.
“We anticipate that the extension of the OPEC+ manufacturing cuts will tighten international oil provides within the near-term,” the EIA mentioned in its March STEO.
“The present OPEC+ settlement has two forms of manufacturing cuts. The primary cuts are formally acknowledged manufacturing targets, and the second cuts are extra voluntary cuts pledged by some OPEC+ contributors,” it added.
“Though our earlier forecast had assumed that a few of the OPEC+ members would keep some voluntary cuts by means of 2Q24 in an effort to stability markets, this new announcement pledges the continuation of cuts for the entire members by means of the primary half of 2024,” it continued.
“As a result of some OPEC+ members are extending these voluntary manufacturing cuts and since Russia added new voluntary manufacturing cuts, we now anticipate oil markets to be a lot tighter in 2Q24 than we beforehand anticipated,” it went on to state.
To contact the creator, electronic mail andreas.exarheas@rigzone.com