Oil prices edged higher yesterday, though they continue to trade in a fairly rangebound manner. ICE Brent settled 0.77% higher on the day, but the market continues to trade firmly below the US$80/bbl level. Given the heightened geopolitical risk, the rangebound trading and lack of a risk premium may surprise some. However, market participants appear to be assuming that we will not see a significant escalation in the Middle East, at least an escalation which puts oil supply at risk. It’s important to remember that while we are seeing disruptions to trade flows as a result of Red Sea developments, oil production remains unchanged as a result. Furthermore, the oil balance is comfortable through 1H24, while OPEC is sitting on a little more than 5m b/d of spare capacity, of which more than 3m b/d sits in Saudi Arabia.
Numbers overnight from the API show that US crude oil inventories increased by 674k barrels over the last week, which is somewhat lower than the roughly 2m barrel build the market was expecting. In addition, Cushing crude oil stocks increased by 492k barrels over the week. For refined products, gasoline stocks increased by 3.65m barrels, whilst distillate inventories declined by 3.7m barrels. The more widely followed EIA report will be released later today.
The EIA released its latest Short-Term Energy Outlook yesterday in which it forecast that US crude oil production will grow by around 170k b/d YoY in 2024 to average 13.1m b/d. This is slightly lower than the 13.21m b/d the EIA was forecasting last month. Last year US crude oil supply grew by a little more than 1m b/d and the drop in growth this year shouldn’t come as too much of a surprise given the slowdown seen in drilling activity for much of last year. Meanwhile, for 2025 the EIA forecasts that crude oil supply will grow by a little more than 390k b/d YoY to a record 13.39m b/d.
Daily Norwegian gas flows to Europe are still down roughly 15% from early February levels given unplanned outages at the Troll field as well as the Nyhamna processing plant. However, flows should resume to more normal levels from tomorrow with the outages expected to only last until today. While lower flows to Europe initially led to some strength in the market, the fact that the outage is expected to be relatively short, along with storage remaining very comfortable, at around 69% full, suggests that prices are likely to remain under pressure.
