Oil Markets Have Been on a Rollercoaster Ride
by Andreas Exarheas
click here to read the original article at Rigzone.com
*this article was not written by Roseland Oil & Gas
Oil markets have been on a rollercoaster ride of late.
That’s what Rystad Energy Senior Analyst Svetlana Tretyakova said in a Rystad oil macro update sent to Rigzone by the Rystad team on Wednesday, adding that “this week is no different”.
“With demand growth uncertain and significant supply outages looking unlikely, all eyes are again on OPEC+,” Tretyakova said in the update.
“The group is expected to decide on the future of its sustained production cuts in the coming days,” Tretyakova added.
“Current market dynamics suggest the group will find it hard to implement a full unwinding in the next 12 months, especially given weakening demand growth and prices already well below the $80 per barrel threshold,” the analyst continued.
Until OPEC+ clarifies its strategy, overall bearishness will persist, the analyst warned.
The Rystad update highlighted that Brent crude futures fell to $72 per barrel yesterday “before rebounding into positive territory for the day”.
“Following a four percent plunge on Tuesday, 3 September, prices reached their lowest levels since mid-December 2023,” the update noted.
“Weak demand growth and ample supply are working together to push prices lower still. Brent has now fallen almost $10 per barrel in just over a week, continuing its recent downward trajectory,” the update added.
The update stated that fresh data from China heightened fears of a sluggish recovery in the world’s second-largest oil consumer, “with key indicators of domestic factory activity falling more than anticipated in August”.
“Anticipated U.S. stock builds are further adding to bearish demand sentiment,” the update warned.
“Meanwhile, producer group OPEC+ signaled its commitment to boosting output in the fourth quarter to offset lost Libyan volumes,” it added.
“Yet, if prices remain below $75 per barrel, OPEC may struggle to justify unwinding its voluntary production cuts,” it continued.
The update also noted that fears of an escalation in geopolitical tensions that drove oil prices higher last week have subsided despite ongoing uncertainty.
“The Gaza ceasefire negotiations continue with no resolution in sight, and hostilities persist between Russia and Ukraine, with attacks ongoing from both sides,” it said.
“The market seems detached from the prevailing supply disruption risks, which remain high, particularly in the Middle East,” it added.
“The conflict shows no signs of abating, perhaps a phenomenon that can be labeled as ‘geopolitical fatigue’,” the update continued.
In a report sent to Rigzone late Wednesday by Standard Chartered Bank Head of Commodities Research Paul Horsnell, analysts at the bank, including Horsnell, highlighted that, “after completing two very large swings, first down and then up, over the past six weeks, oil prices have made a fifth turn with a third, even larger, swing down”.
“November Brent fell $4.91 per barrel week on week to settle at $73.75 per barrel on 3 September, having set a new front-month year to date low of $73.51 per barrel,” the analysts stated.
“That low deepened to $72.63 per barrel in early trading on 4 September. WTI also set a year to date low on 4 September, falling to $69.19 per barrel in early trading,” they added.
“The latest swing lower has allowed volatility to continue its advance: 30-day front-month Brent realized annualized volatility rose 2.3 percentage points week on week to a year to date high of 34.8 percent at settlement on 3 September,” they warned.
In the report, the analysts said there may be a danger of over-analyzing the specific reasons behind the latest slide in prices.
“When the market has already made four sharp turns in six weeks, a fifth sharp turn is in itself fairly unremarkable; it is a feature of a market recently dominated by trend-following strategies overlaid with some volatile market views on U.S. macroeconomic prospects and geopolitical developments,” they noted.
“The current slide, like the two previous recent down-legs, has been magnified by the strategies of Commodity Trading Advisors (CTAs). We think trend-following algorithmic CTAs are even shorter oil than they were at the bottom of the previous two cycles,” they added.
“On the one hand that leaves some scope for a short-covering rally but on the other it suggests that CTA strategy is currently so unbendingly negative on oil that a rally will eventually be followed by CTAs going very short again,” they warned.
The analysts stated in the report that they think it is a particular mistake to attempt to infer fundamentals from recent price dynamics.
“Fundamentals have not made five sharp turns in the past six weeks,” they said.
“Nevertheless, we have seen analysis from wire services talking of tight markets and flat U.S. output at the price-highs and then a week later switching to a narrative of supply gluts and surging U.S. output at the price-lows,” they added.
“However, there have been some important headline-generating developments that have affected prices over the past week, and the most important of those concern Libya,” they continued.
The Standard Chartered analysts highlighted in the report that they think fundamentals for the fourth quarter of this year “have not shifted significantly over the past six weeks”.
“Our balances project a 0.5 million barrels per day inventory draw, assuming that reductions in OPEC+ voluntary cuts occur as currently scheduled,” they said.
“Our projected draw is similar to the 0.7 million barrels per day in the Energy Information Administration (EIA) model. The International Energy Agency (IEA) model generates a 0.7 million barrel per day draw if we use our OPEC output forecast in it, and a 0.5 million barrel per day draw if we use the EIA’s OPEC output forecast,” they continued, adding that “the forecast draws are not large, but they are a significant year on year improvement on the builds recorded in Q4-2023”.
The Standard Chartered analysts pointed out in the report that the September monthly forecast reports are all due to be published next week but warned that they “think it unlikely the forecasts will change enough to support the current market narrative of collapsing demand and a significant supply glut”.
by Andreas Exarheas
click here to read the original article at Rigzone.com
*this article was not written by Roseland Oil & Gas