The majority of the latest monthly balance reports point to improving oil market fundamentals, Paul Horsnell, the Head of Commodities Research at Standard Chartered Bank, noted in a report sent to Rigzone recently.
The report included a chart, which Horsnell highlighted showed the trajectory of Standard Chartered, International Energy Agency (IEA), Energy Information Administration (EIA), and OPEC Secretariat estimates of the year on year change in the call on OPEC, “i.e., the level of OPEC crude oil output that would keep inventories constant given changes in demand, non-OPEC supply, and OPEC non-crude liquids supply”.
“The drift in forecasts over the past three months has, with the exception of the IEA, been gently upwards, implying an improvement in overall market fundamentals,” Horsnell stated in the report, noting that the data can be recast to calibrate how much OPEC could increase output from the second quarter onwards without global inventories increasing.
“The lowest estimates are those of the EIA at 0.6 million barrels per day and the IEA at 0.7 million barrels per day, while the highest estimates are our own at 1.8 million barrels per day and the OPEC Secretariat at 2.7 million barrels per day,” he added.
“Current inventories are low according to the IEA; observed on-land inventories fell 60 million barrels in January to their lowest level since at least 2016,” the Standard Chartered commodities head continued.
In the report, which was sent to Rigzone late Friday, Horsnell said the latest EIA data release is the first bearish one in 2024 according to Standard Chartered’s bull-bear index, which he said fell 47.8 week on week to -25.4.
“Following a series of outages, refinery utilization fell to a 13-month low of 80.6 percent; it was lower by more than six percentage points year on year in the three largest refining regions,” Horsnell said in the report.
“Given these low runs, crude oil inventories rose 7.77 million barrels against the five-year average while gasoline inventories fell 4.05 million barrels against the average,” he added.
“Total inventories are 20.78 million barrels below the five-year average, and the four-week average of the bull-bear index remains strong; in short, a weak data release but the tightening trend remains,” he went on to state.
The majority of readings for Standard Chartered’s U.S. oil data index over the past year have been bullish (20), according to the company’s latest report, which showed that there have been 18 bearish readings and 14 neutral readings over the past year.
In a separate report sent to Rigzone on February 8, Horsnell said a sharp year on year improvement in oil balances “suggests the market is much tighter than current prices might imply”. The price of Brent crude oil closed at $81.63 per barrel on that day.
“There is often a global oil surplus in January due to a seasonal low in oil demand,” the Standard Chartered head said in that report, which included a chart showing the January balance since 2004 according to the company’s supply and demand model.
“There has been an inventory draw in only three years, with the average January change a build of 1.2 million barrels per day,” he added.
“The January 2023 surplus was unusually large at 3.4 million barrels per day; this was the third largest surplus in any month over the past 20 years, exceeded only by two months at the start of the pandemic,” he continued.
“This year, the surplus appears to have been smaller than normal; we estimate it at just 0.3 million barrels per day. This surplus is transitory; we forecast a 1.6 million barrels per day deficit in February while the EIA expects a 2.3 million barrel per day deficit,” the commodities head went on to note in that report.
In a report sent to Rigzone on February 13, Standard Chartered analysts said they still did not think crude oil prices fully reflect the rapid tightening of the market or the recent escalation of geopolitical risk. They noted in that report that, in their view, a Brent price above $90 per barrel would more adequately reflect current fundamentals and risks.
At the time of writing, the price of Brent crude oil is trading at $82.91 per barrel.
In a statement posted on its X page on Sunday, U.S. Central Command (Centcom) said that, between the hours of 3.00pm to 8.00pm, Sanaa time, on February 17, Centcom “successfully conducted five self-defense strikes against three mobile anti-ship cruise missiles, one unmanned underwater vessel (UUV), and one unmanned surface vessel (USV) in Iranian-backed Houthi-controlled areas of Yemen”.
“This is the first observed Houthi employment of a UUV since attacks began in October 23. Centcom identified the anti-ship cruise missiles, unmanned underwater vessel, and the unmanned surface vessel in Houthi-controlled areas of Yemen and determined they presented an imminent threat to U.S. Navy ships and merchant vessels in the region,” it added.
“These actions will protect freedom of navigation and make international waters safer and more secure for U.S. Navy and merchant vessels,” it continued.
In a previous post on X, Centcom said four anti-ship ballistic missiles “launched from Iranian-backed Houthi-controlled areas of Yemen into the Red Sea”.
“It is assessed that at least three of the missiles were launched towards commercial vessel MT Pollux, a Panamanian-flagged, Denmark-owned, Panamanian-registered vessel. There were no reported injuries or damage from MT Pollux or any other ship in the area,” it added.
To contact the author, email andreas.exarheas@rigzone.com
