The front-month Brent contract traded as high as $78.73 a barrel on June 5 in response to Saudi Arabia’s surprise unilateral cut of a million barrels a day in July, but since then, it has been gradually declining.
That’s what Bjarne Schieldrop, SEB’s chief commodity analyst, explained in a statement sent to Rigzone on Tuesday, adding that on June 12, it fell 1.6 percent to 73.6 dollars per barrel “for no other obvious reason than Goldman gave up its year-end target of $95 a barrel and replaced it with $86 a barrel.”
“In its latest oil market report, the IEA forecasts that the world will need 30.5 million barrels per day from OPEC in the second quarter of 2023, as the world will consume 103 million barrels per day in third quarter of 2023 versus 100.6 million barrels per day in the fourth quarter of 2022,” Schieldrop said in the statement.
“But obviously the market is not buying that projection and the shortfall of two to three million barrels per day at all,” he added.
“In contrast, oil is selling ahead of Saudi July cuts, Saudi July price hikes (OSP) and the IEA’s large deficit projections. The current oil selloff is an implicit market assumption that oil inventories will build in July,” he continued.
Schieldrop stressed in the statement that demand must be below 100 million barrels per day for this to happen, “so there is an implied demand gap in July between the IEA and the market of more than three million of barrels per day”.
“At the moment the market is practicing a ‘I won’t believe it before I see it’ attitude towards the oil market,” he said.
In the statement, Schieldrop said the market has doubts about demand, but noted that it should not doubt Saudi Arabia’s determination.
“Saudi Arabia has raised its July official selling prices by 45 cents per barrel for all grades. Not only is Saudi Arabia cutting supply by a million barrels per day in July, it is also raising the their prices,” he said.
“The effect of this is that it will prompt its futures buyers to buy more in the global spot market, thereby strengthening that market and spot oil prices,” he added.
“Saudi Arabia is not new to this game and knows exactly what it needs to do to get away with it. The market may not believe in strong demand, but it should not doubt strong Saudi/OPEC action “, it continued.
“The ability, the will and the ability to cut deep when needed is there. For now, it looks like Saudi Arabia is going it alone, but that won’t be for long,” Schieldrop said.
Brent Current, Projections
At the time of writing, Brent is trading at $74.66 a barrel.
The US Energy Information Administration (EIA) raised 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 the price of Brent to average $91 a barrel this year. In that report, Brent was expected 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 it was maintaining its average forecast of $80 per barrel for Brent 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 in global economic activity and seasonal demand tailwinds to cause a shortage of ‘between one and three million barrels. per day in 2H23 and $100 per Brent barrel in 4Q23.
In another statement sent to Rigzone last week, Wood Mackenzie noted that its Macro Oils Service projects that global oil demand will increase by 2.4 million barrels per day on an annualized basis, “eclipsing an increase of 1, 5 million barrels per day year over year in total liquids supply.” with Brent forecast to average $84.70 per barrel in 2023.”
Cut from Saudi Arabia
In a statement posted on its website on June 4, Saudi Arabia’s Ministry of Energy said an official ministry source announced that “the Kingdom will implement an additional voluntary cut in its crude oil production, which amounts to one million barrels per day, starting in July for an extendable month, so that the production of the Kingdom becomes nine million barrels per day, and the total voluntary cut of the Kingdom 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 the OPEC Plus countries with the aim of supporting the stability and balance of the oil markets,” he noted. the ministry in the statement.
A statement published on the OPEC website on June 4 revealed that OPEC+ would adjust its global crude oil production level to 40.46 million barrels per day from 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, with 9.828 million barrels per day, and the third highest is taken by Iraq, with 4.431 million barrels per day.
To contact the author, please send an email andreas.exarcheas@rigzone.com
