Brent inches lower amid few fresh signals this morning

Few strong drivers this morning so Brent hands back a little of its latest gains. Brent crude gained another 0.6% ydy with a close at USD 87.38/b and a high of the day of USD 87.7/b. It has been a sharp rally since 13 March when Brent broke out of its more than one month long sideways range with closing prices between USD 81.6/b to USD 83.7/b. In our view this recent break-out to the upside was in the making during the month to 13 March as US inventories ticked lower and lower. What was needed was a catalyst and that catalyst was the Ukrainian drones which knocked out 600 k b/d of refining capacity in Russia (Blbrg, Gunvor). No Russian crude oil production has been lost. The impact is on supply of refined products, refining margins and thus on crude slate spreads where light sweet crude oil is usually gaining ground on such events. The front-month ARA gasoil to Brent crack is only up USD 1/b (to USD 26.4/b) versus the preceding 5 days ahead of 13 March. This implies that either that the outage of 600 k b/d of Russian refining capacity is fully manageable by the global refining system or that the outage isn’t expected to last all that long. This morning Brent crude is ticking down 0.4% to USD 87/b which is well aligned with copper prices which is also off by 0.4%. But it doesn’t look like there are much strong oil price driving elements being either bullish or bearish this morning and as a result Brent crude and as a result Brent crude is giving back a small portion of its gains since 13 March. But not much.

Bjarne Schieldrop, Chief analyst commodities, SEB

US API indicates a 2.5 m b decline in US crude and products last week which is normal this time of year. Partial, US oil inventory data by API last evening indicated a decline in US inventories last week of around 2.5 m b for both crude and products. That is well aligned with normal, seasonal US inventory draws this time of year and thus does little to lift the oil price today. But a sharper draw in actual data due at 15:30 CET could of course spark some bullishness.

CeraWeek in Houston. Jeff Currie favors long oil and copper in late cycle upturn. CeraWeek is going on in Houston this week and ending Friday. Naturally a mix of bullish and bearish views is coming out of the conference. Gunvor is holding a very solid bullish view of the strength of the oil market stating that Brent crude will average USD 85-90/b in Q3-24 even if OPEC+ is unwinding current voluntary cuts then. Jeff Currie (now at Carlyle) is flat out bullish on oil explaining that the global economy now is in a late economic cycle which typically favors commodities like copper and oil. He doesn’t expect many to favor a short oil position in oil once it gets to USD 90/b. I.e. there is upside to that price. The live interview of Currie in Houston by Blbrg is well worth (great) to watch in my view and also delivers some very good, broad views on asset investments in the energy transition.

US shale oil to hit 14 m b/d at end of 2014 says Macquarie. Not everyone are that bullish and there seems to be a mix of bulls and bears on US shale oil production. Macquarie’s analyst Walt Chancellor (one of few predicting the strong US shale oil growth in 2023) is projecting US crude oil production to touch 14 m b/d end of year vs. 13.5 m b/d in Dec-23. Though it is not all that far from latest US EIA projection of Dec-24 production of 13.8 m b/d.

Oil prices are well supported by fundamentals. Our general view is that demand growth is sufficiently strong, cuts by OPEC+ are sufficiently deep and US shale oil production is sufficiently muted so that in total the global oil market is running a slight deficit which will carry on driving oil inventories gradually lower and create nice support for oil prices and likely inch them gradually higher.

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