These Factors Helped Brent Oil Price Break Above $85
by Andreas Exarheas
click here to read the original article at Rigzone.com
*this article was not written by Roseland Oil & Gas
Continued declines in U.S. inventories, a bullish oil market outlook from the International Energy Agency (IEA), and damages on Russia’s Rosneft Ryazan oil processing plant by Ukrainian drones helped Brent crude to break above the $85 per barrel level.
That’s what Bjarne Schieldrop, the Chief Commodities Analyst at Skandinaviska Enskilda Banken AB (SEB), said in a report sent to Rigzone early Monday, highlighting that Brent crude gained 4.1 percent last week with a close of $85.3 per barrel on Friday, March 15.
“This [Monday] morning Brent is adding another 0.4 percent to $85.7 per barrel, driven by a range of additional attacks on Russian refineries over the weekend and positive Chinese macro data also showing Chinese apparent oil demand up 6.1 percent year on year for Jan+Feb,” Schieldrop stated in the report.
The SEB Commodities Chief noted in the report that “steady and continued declines” in U.S. inventories since the start of the year have been “nudging the oil price steadily higher” but added that “there has clearly been some resistance around the $85 per barrel level”.
“U.S. inventories continued that decline in data also last week with commercial crude and product stocks down 4.7 million barrels. Total U.S. stocks including SPR [Strategic Petroleum Reserve] declined 4.1 million barrels to 1,580 million barrels, which is now only two million barrels above the low point on December 30, 2022, at 1,578 million barrels,” he added.
“These persistent declines in U.S. oil inventories is a clear reflection of the global market in deficit where demand is sufficiently strong, cuts by OPEC+ are sufficiently deep, while U.S. shale oil production is close to muted with hardly any growth projected from Q4-23 to Q4-24,” he continued.
Additional Boost
Schieldrop stated in the report that the monthly report from IEA last week “gave an additional boost to this picture as it lifted projected oil demand for 2024 by 0.2 million barrels per day, reduced non-OPEC production by 0.2 million barrels per day, and thus increased its estimated call-on-OPEC by 0.4 million barrels per day for 2024”.
“The world will need steadily more oil from OPEC every quarter to Q3-24 and by Q4-24 the world will need 0.8 million barrels per day more from the group than it did in Q4-23. That is great news for OPEC+. There is no way that they’ll move away from current strategy of ‘price over volume’ with this backdrop,” he added.
Schieldrop also noted in the report that “the Ukrainian drone attacks on Russian oil infrastructure has surprised the market, as many of them are deep within Russia”.
“Facilities in Russia’s Samara region which is more than 1,000 km away from the Ukrainian border were attacked on Saturday,” he added.
“We’ll likely not lose any oil supply, while we might lose oil refining capacity due to these attacks. Most of the impact from these attacks should thus be on refining margins and not so much on crude oil prices. But when diesel cracks, gasoil cracks, and gasoline cracks goes up then typically also light sweet crude prices goes up,” he continued.
“As such there is a spillover effect from damages to Russian oil refineries to Brent crude oil prices even if we don’t lose a single drop of Russian crude oil production and supply,” Schieldrop warned.
The SEB Commodities Chief revealed in the report that SEB’s latest Brent crude forecast for this year is $85 per barrel. Schieldrop warned in the report that this “implies that we’ll likely see both $70 per barrel as well as $100 per barrel sometimes during the year”.
Market Participants Lacking Conviction
In a separate report sent to Rigzone on Monday, analysts at BMI, a Fitch Solutions company, revealed that they have left their Brent crude oil price forecast unchanged this month, at $85 per barrel for 2024.
“The front-month contract has been tightly rangebound over the last month, closing between $82-84 per barrel,” the analysts added in the report.
“Market participants are lacking conviction, with supply and demand-side risks pulling prices in opposite directions. Conflicting price signals will likely remain a feature of the market in Q2, as mounting macro headwinds drag Brent to the downside, while elevated geopolitical risk buoys it up,” they continued.
“We maintain our view for stronger price performance over the second half of the year, as an improved macroeconomic backdrop bolsters sentiment and uplifts demand, while slowing U.S. production growth and continued support from OPEC+ keeps the reins on supply,” the analysts went on to state.
The BMI analysts highlighted in the report that OPEC+ “opted to rollover its current cuts from March until June 2024”, pointing out that the decision was “broadly in line with market expectations”.
“Headline compliance with the cuts remains strong, although performance varies widely at the market level, with several countries – notably Iraq and Kazakhstan – far exceeding their February quotas,” the analysts said in the report.
“Assuming we see some improvement in global macros, there will be scope for growth in the second half of this year. However, the group is unlikely to deviate from its previous policy prioritizing prices over production,” they added.
“In its latest communique, the OPEC Secretariat stated emphasized that any unwinding of the OPEC+ cuts would be both gradual and subject to market conditions,” they continued.
SC, EIA
In a report sent to Rigzone on Friday, Paul Horsnell, the Head of Commodities Research at Standard Chartered Bank, said, “oil market sentiment has improved significantly, with some of the more extreme demand fears dissipating”.
Horsnell revealed in the report that Standard Chartered thinks fundamentals justify prices above $90 per barrel.
According to the U.S. Energy Information Administration’s (EIA) latest short term energy outlook (STEO), the organization sees the Brent spot price averaging $87 per barrel this year and $84.80 per barrel in 2025. This is a notable increase from the Brent spot price forecasts in the EIA’s previous February STEO, which came in at $82.42 per barrel for 2024 and $79.49 per barrel for 2025.
“We expect that the extension of the OPEC+ production cuts will tighten global oil supplies in the near-term,” the EIA said in its March STEO.
“The current OPEC+ agreement has two types of production cuts. The first cuts are officially stated production targets, and the second cuts are additional voluntary cuts pledged by some OPEC+ participants,” it added.
“Although our previous forecast had assumed that some of the OPEC+ members would maintain some voluntary cuts through 2Q24 in an effort to balance markets, this new announcement pledges the continuation of cuts for all of the members through the first half of 2024,” it continued.
“Because some OPEC+ members are extending these voluntary production cuts and because Russia added new voluntary production cuts, we now expect oil markets to be much tighter in 2Q24 than we previously expected,” it went on to state.
by Andreas Exarheas
click here to read the original article at Rigzone.com
*this article was not written by Roseland Oil & Gas