The front-month Brent contract traded to a high of $78.73 per barrel on June 5 in response to the unilateral surprise cut of one million barrels per day for July by Saudi Arabia, but, since then, it has gradually ticked lower.
That’s what Bjarne Schieldrop, the Chief Commodity Analyst at SEB, outlined in a statement sent to Rigzone on Tuesday, adding that, on June 12, it was down 1.6 percent to $73.6 per barrel “for no other obvious reason than that Goldman gave up on its $95 per barrel end of year target and replaced it with $86 per barrel”.
“In its latest oil market report, the IEA projects that the world will need 30.5 million barrels per day from OPEC in H2-2023 as the world will consume 103 million barrels per day in Q3-2023 vs. 100.6 million barrels per day in Q4-2022,” Schieldrop said in the statement.
“But the market is obviously not buying into this projection at all and the two to three million barrel per day deficit,” he added.
“Instead, oil is selling off in the face of Saudi July cuts, Saudi July price hikes (OSPs), and large deficit projections by the IEA. The current sell-off in oil is an implied assumption by the market that oil inventories will build in July,” he continued.
Schieldrop highlighted in the statement that demand needs to be below 100 million barrels per day for that to happen, “so there is an implied difference in demand in July between the IEA and the market of more than three million barrels per day”.
“For the moment the market is practicing an attitude to the oil market of ‘I don't believe it before I see it’,” he said.
In the statement, Schieldrop said the market has doubts about demand but noted that it shouldn't doubt Saudi Arabia’s determination.
“Saudi Arabia has lifted its Official Selling Prices for July by 45 cents per barrel for all grades. Not only is Saudi Arabia reducing supply by one million barrels per day in July, it is also lifting its prices as well,” he said.
“The effect of this is that it will push its term-buyers to buy more in the global spot market thereby firming up that market and its spot oil prices,” he added.
“Saudi Arabia is not new to this game and knows exactly what to do to get its way. The market may not believe in strong demand, but it should not doubt strong action by Saudi/OPEC,” he continued.
“The capacity, willingness, and ability to cut deep when needed is there. For now, it looks like Saudi is going it alone, but that won’t be for long,” Schieldrop went on to state.
Brent Current, Projections
At the time of writing, the price of Brent is trading that $74.66 per barrel.
The U.S. Energy Information Administration (EIA) increased its average Brent spot price forecast for this year in its latest short term energy outlook (STEO), which was released last week. According to the June STEO, the EIA now expects the Brent spot price to average $79.54 per barrel this year. In its previous STEO, which was released in May, the EIA projected that the Brent spot price would average $78.65 per barrel this year.
In a report sent to Rigzone last week, analysts at Standard Chartered projected that the price of Brent will average $91 per barrel this year. In this report, Brent was predicted to average $88 per barrel in the third quarter of this year and $93 per barrel in the fourth quarter. In a separate report sent to Rigzone last week, BofA Global Research revealed that it was maintaining its average $80 per barrel Brent forecast for this year.
Also last week, in a statement sent to Rigzone, Enverus Intelligence Research, a subsidiary of Enverus, said it continues to call for a gradual improvement of global economic activity and seasonal demand tail winds to lead to a supply shortage of one to three million barrels per day in 2H23 and $100 per barrel Brent by 4Q23.
In another statement sent to Rigzone last week, Wood Mackenzie noted that its Macro Oils Service projects global oil demand to rise 2.4 million barrels per day on an annualized basis, “eclipsing a 1.5 million barrel per day year on year gain in total liquids supply, with Brent forecast to average $84.70 per barrel in 2023”.
Saudi Arabia Cut
In a statement posted on its website on June 4, Saudi Arabia’s Energy Ministry said an official source in the ministry announced that “the Kingdom will implement an additional voluntary cut in its production of crude oil, amounting to one million barrels per day, starting in July for a month that can be extended, so that the Kingdom’s production becomes nine million barrel per day, and the Kingdom’s total voluntary cut will be 1.5 million barrels per day”.
“The source explained that the Kingdom’s additional voluntary cut comes to reinforce the precautionary efforts made by OPEC Plus countries with the aim of supporting the stability and balance of oil markets,” the ministry noted in the statement.
A statement posted on OPEC’s website on June 4 revealed that OPEC+ would adjust its level of overall crude oil production to 40.46 million barrels per day, starting January 1, 2024, until December 31, 2024. According to a production table accompanying the statement, Saudi Arabia’s required production level during this time is 10.478 million barrels per day.
This figure is the highest in the table. The second highest required production level in the table is taken by Russia, at 9.828 million barrels per day, and the third highest is taken by Iraq, at 4.431 million barrels per day.
To contact the author, email andreas.exarheas@rigzone.com
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June 14, 2023 at 03:05PM
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Analyst Looks at Decreasing Oil Price - Rigzone News
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