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A tight market and macro optimism is driving crude oil prices higher. Forget about geopolitical risk premiums


Brent crude reaches highest level since October 2023. Brent crude ended last week at USD 87.48/b. The highest close since October last year. Ydy it traded in a range of USD 86.4 – 87.98/b but closed slightly below that level the pre-Eastern closing level at USD 87.42/b. This morning it is kicking off on a strong note and currently trading at USD 88/b.

Bjarne Schieldrop, Chief analyst commodities, SEB

Bullets, bombs and tragedies catches the headlines but for oil they have so far been catalysts for higher prices rather than the real reasons for crude oil price gains. Headlines these days are naturally and frequently filled with the tragedy playing out in Gaza with spillover effects in Lebanon, Syria, Yemen and elsewhere in the Middle East. Not a single drop of oil due to these events has however been lost due to these events except for some re-routing of oil around Africa rather than through the Suez Canal. ”Additional risk premium” has frequently been quoted as the explaining factor to the price gains we have seen both recently and since oil prices bottomed out in early December 2023. There is always a risk for an engulfing regional war in the Middle East with large losses of supply of oil due to this. But we don’t think there is much of a risk premium in the oil price due to such risks. Not today and not over the past 6 mths. Bullets, bombs and tragedy in the Middle East have been more like catalysts releasing the the oil price to the upside on the back of a tight market with falling inventories rather than the real reason for the higher prices. The Ukrainian drone attacks which drove some 800 k b/d of Russian refineries off line in mid-March did indeed affect the oil complex directly but it didn’t halt any supply of crude oil. Global refinery runs will likely average close to 84 m b/d in 2024. If we assume that the affected Russian refineries will stay off line for two months then a mere 0.2% of global refining has been affected. Refining margins have naturally hardly moved at all due to the events with the Russian refineries. So while the events with Russian refineries helped to drive crude oil prices higher is was more of a catalyst than a fundamental factor.

A tight market and rising macro optimism is driving crude oil prices higher. What is driving the oil price higher however is a tight market as a result of muted US shale oil production growth, a steadfast OPEC+ holding Q1-24 cuts also in Q2-24 together with sufficiently strong oil demand growth. All leading to falling inventories and rising crude oil prices. The global oil market is not running a massive deficit but it is running a deficit week after week. Add rising optimism for the global economy with US manufacturing PMI for March ydy showing a reading of 50.3 and China March PMI reaching 50.8.

Net long specs in Brent reaches highest level in 13 mths. Matches well with expanding manufacturing PMIs in the US and China. Macro oriented trading strategies seems to follow the general global business cycle with ”go long oil if global manufacturing activity is expanding”.  Net long Brent crude oil speculative positions rose 1 m b over the week to 26 March 290 m b which was the highest level in 13 mths. And with latest readings of US and Chinese PMI’s the net long spec positions will likely rise further.

Inlägget A tight market and macro optimism is driving crude oil prices higher. Forget about geopolitical risk premiums dök först upp på Rå

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