Oil Prices Give Up Nearly All 2022 Gains

Oil Prices Give Up Nearly All 2022 Gains
Oil prices have given up nearly all their 2022 gains, analysts at Standard Chartered highlighted.

Oil prices have given up nearly all their 2022 gains, analysts at Standard Chartered highlighted in a new market report sent to Rigzone late Tuesday.

“We see the Q3 oil surplus - unanticipated by overly-bullish U.S. investment bank and consultant consensus - as the main reason for the recent fall,” the analysts stated in the report.

“Our global oil supply and demand model implies a surplus of 1.7 million barrels per day (mb/d) in October, the fourth consecutive month with a surplus of more than 1 mb/d. However, we forecast that the surplus will narrow significantly in November and become a small deficit in December,” the analysts added.

“We expect the Q4 surplus to average 0.6 mb/d, one-third of the Q3 surplus. With OECD inventories still well below both the five-year average and the low of the five-year range, we see the reduced Q4 surplus as evidence that there is no fundamental reason for OPEC to rush to make immediate supply cuts,” the Standard Chartered analysts continued.

In the report, the analysts also noted that there seems little urgency for OPEC to make cuts in 2023. The analysts did warn, however, that a cut is likely if substantial Iranian volumes return earlier than in Standard Chartered’s model (Q3), Russian output falls by less year on year than the company’s 1.46 mb/d forecast, or global demand grows by less year on year than Standard Chartered’s 1.5 mb/d forecast.

“While both supply and demand risks are currently elevated, the argument for significant OPEC cuts in 2023 is weak in our current base case,” the Standard Chartered analysts said in the report.

At its latest OPEC+ meeting, which was held on September 5, the group decided to revert to the production level of August 2022 for the month of October 2022, outlining that the upward adjustment of 100,000 barrels per day to the production level was only intended for the month of September 2022. OPEC+’s next meeting is currently scheduled to be held on October 5.

Oil soared past $100 per barrel for the first time in years in February as Russian forces escalated a conflict with Ukraine. Brent prices, which started the year at under $80 per barrel, climbed to a 2022 high, so far, of $127.98 per barrel on March 8 and closed over $120 per barrel on several occasions from March to June this year. From around the middle of June, however, Brent prices have steadily dropped from over $122 per barrel to under $90 per barrel.

At the time of writing, the price of Brent crude oil stood at $89.24 per barrel.  

To contact the author, email andreas.exarheas@rigzone.com

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