Latest Oil Market Reports Show Broad Balance Agreement
The latest monthly oil market reports show a broad agreement about balances, Standard Chartered (SC) highlighted in a market note sent to Rigzone.
In the note, SC provided a chart showing four estimates - from the International Energy Agency (IEA), the Energy Information Administration (EIA), the OPEC Secretariat and SC - of implied global inventory changes in 2021 and the first three quarters of 2022. All four show a large 2021 deficit giving way to a smaller deficit in the first quarter before moving into a significant surplus in the third quarter.
“We estimate the Q3 surplus at 1.82 million barrels per day,” SC stated in the market note.
“Forecasts from consultants and U.S. investment banks of Q3 oil prices of $150 per barrel and higher were mainly based on the assumption of a large deficit. We think the market has not yet fully priced in the extent to which that assumption proved wrong,” SC added in the note.
“Those consultants and banks with the highest forecasts have more recently attributed the fall in prices to failures in the market mechanism; volatility, perceived low liquidity and even irrationality among traders … [the chart] implies a far simpler explanation, the fall in oil prices is the result of a well-functioning market responding rationally to a sharp swing into surplus,” SC continued.
SC highlighted that its chart does not include the effect of strategic inventory releases, adding that the U.S. alone has transferred an average 0.83 million barrels per day into commercial inventories in Q3.
“With a large global flow surplus and those transfers available to rebuild inventories, U.S. oil data has been mainly bearish in Q3,” SC stated in the note.
“The latest Energy Information Administration (EIA) release continues that trend, with our U.S. oil data bull-bear falling 8.3 week on week to a highly bearish -70.0,” SC added.
“Early indications of September demand are weak; demand for all products is lower year on year except other oils … The distillate data was particularly weak with a sharp 4.22 million barrel inventory build and the lowest implied demand in 20 months,” SC continued.
In a separate market note sent to Rigzone earlier this week, SC analysts noted that oil markets had remained relatively calm, “with WTI extending its run of front-month settlements below $100 per barrel to 37 while the equivalent Brent run stands at 10 settlements”.
“We see limited appeal in being long the front of the Brent curve at this point,” SC analysts stated in that report.
“We see merit in building up strategic longs at the back of the curve, particularly with prices below $70 per barrel,” the analysts added.
At the time of writing, the price of WTI stood at $85.42 per barrel and the price of Brent stood at $91.30 per barrel. Both commodities saw their 2022 peak, so far, on March 8, with WTI closing at $123.7 per barrel and Brent closing at $127.98 per barrel.
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