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Commodity Markets Begin 2024 With Echoes of Start of 2023

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Commodity markets have begun 2024 with some echoes of the start of 2023, analysts at Standard Chartered noted in a report sent to Rigzone this week.

“One of the most striking similarities is investor positioning in energy and metals; our money-manager positioning indices are little changed year on year for most commodities (only silver and distillates are significantly different),” the analysts said in the report.

“Investor views at the start of 2023 could have been summarized as bullish platinum, gasoline and gold; neutral copper; and very bearish crude oil and palladium. That characterization is equally true at the start of 2024,” they added.

“In energy, the echo continues into prices; the Brent curve is a little lower year on year at the front and a little higher at the back,” they continued.

The analysts stated in the report that the broad concerns expressed by crude oil investors and traders also seem little changed year on year, “with demand pessimism dominating, along with the associated view that market surpluses will be larger than in 2023”.

“The main source of this pessimism may have tilted from China towards the U.S. and Europe, but the intensity of the macro-led pessimism appears little changed,” they said.

The Standard Chartered analysts did note in the report, however, that there are two important differences from January 2023 “that we think are leading to oil being underpriced by at least $10 per barrel currently”.

“First, supply and demand balances are significantly more supportive than 2023, when an outsized January surplus of 3.5 million barrels per day fed into a large 1.6 million barrel per day Q1-2023 surplus,” they stated.

“We estimate the January 2024 surplus at a more normal seasonal level of 1.5 million barrels per day, with deficits in February and March compensating and leading to a small counter-seasonal Q1-2024 deficit of 0.3 million barrels per day,” they added.

The second key difference from January 2023 is the geopolitical background in the Middle East, according to the analysts.

“We think none of the risk of a misstep that could widen the current conflict is priced in currently, and that in particular the market is understating the risk of significant potential downside to both Iranian and Iraqi oil exports,” the analysts said in the report.

In its report, Standard Chartered projected the overall ICE Brent and NYMEX WTI basis prices for 2025, 2026, and 2027. It also included a quarterly price projection breakdown from the second quarter of 2024 to the second quarter of 2025.

The company expects the ICE Brent price to come in at $109 per barrel in 2025, $128 per barrel in 2026, and $115 per barrel in 2027, and the NYMEX WTI basis price to average $106 per barrel in 2025, $125 per barrel in 2026, and $112 per barrel in 2027, the report showed.

Standard Chartered expects the ICE Brent price to average $94 per barrel in the second quarter of 2024, $98 per barrel in the third quarter, $106 per barrel in the fourth quarter, $107 per barrel in the first quarter of 2025, and $103 per barrel in the second quarter of next year, according to the report.

The NYMEX WTI basis price is projected in the report to average $91 per barrel in the second quarter of 2024, $95 per barrel in the third quarter, $103 per barrel in the fourth quarter, $104 per barrel in the first quarter of next year, and $100 per barrel in the second quarter of next year.

In a report sent to Rigzone on December 5, Standard Chartered forecast that the ICE Brent price would average $92 per barrel in the first quarter of 2024 and $98 per barrel overall this year. That report projected that the NYMEX WTI basis price would average $89 per barrel in the first quarter of 2024 and $95 per barrel overall this year.

In its latest short term energy outlook (STEO), which was released this week, the U.S. Energy Information Administration (EIA) projected that the Brent spot price will average $82.49 per barrel in 2024 and $79.48 per barrel in 2025. The January STEO forecast that the WTI spot price will average $77.99 per barrel this year and $74.98 per barrel next year.

The EIA’s latest STEO highlighted that the Brent spot price averaged $82.41 per barrel in 2023 and $100.94 per barrel in 2022. The WTI spot price averaged $77.58 per barrel last year and $94.91 per barrel in 2022, according to the STEO.

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

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