In an oil and gas industry report sent to Rigzone on Wednesday, Macquarie Strategists noted that they remain short term bullish as they expect balances to tighten as a result of OPEC cuts and increasing refining runs.
“In August, we expect a draw in crude inventories as recently underperforming refinery runs close the gap versus expectations,” the strategists stated in the report.
“That said, without an acceleration of OPEC cuts, the draws may disappoint versus market expectations. After the current rally, we expect a price correction in 4Q23 / 1Q24 due to sweet production growth in the U.S. and N. Sea and reduced OPEC+ compliance,” the strategists added.
In the report, the Macquarie strategists noted that refinery margins have continued to strengthen “as runs have increased slower than expected coming out of spring T/A season”.
“Refining runs have missed expectations due to a combination of start-up challenges at new Middle Eastern facilities, lower European runs, historically high temperatures reducing achievable capacity, and higher unplanned outages in the United States,” they added.
“We estimate refining runs will potentially increase by around 1.5 M BPD between now and fall turnarounds. The increase in runs could pressure margins as temperatures fall and new kits in Oman, Kuwait and Iraq continue to ramp,” they continued.
The Macquarie strategists also highlighted in the report that both West Texas Intermediate (WTI) and Brent built managed money and other net length over the last week, “with WTI increasing by 14.9K and Brent rising by 28.8K”.
“WTI speculator length continued its upward trajectory led by a reduction in short positioning with a long/short ratio move of 2.59 to 3.26,” the strategists said in the report.
“Brent saw a smaller move compared to WTI with a greater increase in longs than decrease in shorts with a long/short ratio going from 0.74 to 0.79,” they added.
“Brent recorded a large fall in commercial length, decreasing by 34K contracts as short positions grew by 31K over the past week,” they continued.
Refinery Margins, Q3 Bullish
In a separate report sent to Rigzone on July 28, Macquarie strategists said refinery margins “continue to strengthen in contrast to our view and what we believe was consensus”.
“We now expect margins to sell off in August. The market expected a large increase in runs following spring turnarounds, a process that should have softened margins under almost any demand scenario,” they added in that report.
“We modeled runs to increase from 81.5 M BPD to 84 M BPD between May and July. Instead, runs are currently only 82.5 M BPD by our estimates but could reach 84 M BPD in August or early September before the fall T/A (maintenance) season,” they continued.
In another report sent to Rigzone on July 19, Macquarie strategists said they remained short term bullish through 3Q23 “as OPEC+ cuts and increased runs, both of which have started slowly, should tighten balances”.
“Both supply and demand helped oil price action last week. On the demand side, the U.S. posted an acceleration in runs with throughput rising by 629 K BPD. Supply tightness came via a short disruption in Libya and a small production outage in Nigeria,” the strategists added in that report.
“Following the current rally, we anticipate a price correction in 4Q23 / 1Q24 as a result of sweet production growth in the US and N. Sea, waning OPEC+ compliance and slowing demand growth due to recessionary impacts,” the Macquarie strategists went on to state in the July 18 report.
The strategists highlighted in that report that both WTI and Brent built managed money and other net length over the prior week, “with WTI rising by 29.0K and Brent increasing by 33.1K”.
“WTI speculator length maintained its upward trajectory led by an increase in long positioning with a long/short ratio move of 2.11 to 2.27. Brent demonstrated a sizeable increase in longs as well with a long/short ratio going from 0.74 to 0.81,” the strategists said in the report.
“Both WTI & Brent commercial length fell for the second week, falling by 16K and 36K respectively, as long positions declined by more than short positions rose,” they added.
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