US inventory data today at 16:30 CET could be a strong bullish catalyst

Strong gains ydy. Now it may fool around a bit before breaking USD 90/b. (but it will break). Brent crude jumped 1.7% to USD 88.92/b ydy as the market is starting to price in a possible cyclical upturn rather than any kinds of ”landing” on the back of latest positive (above 50) manufacturing PMI’s from US and China. Intraday it reached as high as USD 89.32/b. This morning Brent is trading 0.2% in positive territory but has so far not yet breached the intraday high from ydy. Are we going to USD 90/b right away or are we going to fool around a little first. The market is a little hesitant as the big number 90 is right above current price level. And usually it does take some fooling around to break such levels. But the fundamentals are fully there to break it. So it is more about when and how it is broken. Maybe some bombs and grenades in the Middle East or Russia is needed as a catalyst to break above.

Bjarne Schieldrop, Chief analyst commodities, SEB

US inventory data at 16:30 today could be very bullish. US API ydy indicated a draw in US crude and product stocks of 6.4 m b last week. Normally US total commercial inventories should rise 3.8 m b this time of year. If actual data by the US DOE due today at 16:30 CET confirms indics from API ydy, then it is indeed bullish. US inventories would then diverge negatively vs the normal inventories by a full 10.2 m b. That is very bullish and could be what is needed to drive Brent crude above USD 90/b.

OPEC+ will produce more if needed and more if the crude oil price moves too far to the upside. OPEC+ is in full control both to the downside and to the upside. OPEC+ wants a nice price. Sufficiently high: USD 80/b or more. But not too high either: Not USD 110-120/b. At least not in 2024. Brent crude averaged USD 82.1/b last year. So far this year it has averaged USD 82.1/b. For now it is creating neither inflation nor deflation and is fully neutral as such. If Brent crude moves too much to the upside then it might start to generate some inflationary impulses which again could force central banks to maintain high interest rates for longer to slow inflation through slower economic growth. That is of course negative for oil demand growth and OPEC+ does indeed like solid oil demand growth. So if the oil price moves too much to the upside then OPEC+ will indeed produce more. Saudi Arabia today is only producing some 9 m b/d vs normal 10 m b/d. The other core OPEC members are also producing well below capacity. All of them want to produce more and close to normal if they can do so without driving the oil price below USD 80-85/b. OPEC currently has more than 4 m b/d of spare capacity according to the US EIA. Saudi Arabia would love to produce a normal 10 m b/d if it could do so without driving the oil price below USD 80-85/b. So OPEC(+) is in full control of the market. The oil market is running a deficit all through Q2-24 if the group sticks to targets. While USD 90/b will be broken the upside isn’t unlimited as the group will then produce more (maybe later in the year) to prevent inflationary effects, high rates for longer and damage to global economic growth and oil demand growth.

US commercial crude and product stocks could move down 6.4 m b to 1211 m b if US API is correct in its indicative numbers ydy. Pink dot is assuming API is correct.

Source: SEB graph and calculations, Blbrg data feed, US EIA data

Core OPEC would love to produce more if it could without driving the oil price below USD 80-85/b

Source: SEB calculations and graph, Blrg data.

OPEC spare capacity at more than 4 m b/d according to the US EIA

Source: US EIA

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