In a new report sent to Rigzone this week, Macquarie strategists noted that they remain bullish in the short term, but warned that they “expect to shift to a more neutral and potentially bearish stance as the downturn approaches.”
“The remaining upside should be driven by rising runs that will support global equity draws until the fall T/A season begins,” strategists noted in the report.
“After a slow start, KSA (Kingdom of Saudi Arabia) and Russia appear to be reducing production and exports in earnest, but we are wary of investments and free riding by other members,” they add.
“If supply cuts do not persist and high temperatures prevent runs from increasing, stock draws may continue to disappoint. Also… [Sunday’s] The announcement of the restart of Shell’s 250,000 bpd Forcados terminal will reduce stock drawdowns,” they continued.
Strategists said in the report that they expect a correction in the fourth quarter of 2023/first quarter of next year, “due to growth in sweet production in the US, the North Sea and the OPEC+ default “.
Macquarie strategists noted in the report that refining margins have “remained at elevated levels” as refiners “have been unable to keep pace with modest or good global product demand”.
“Last week, the IEA reported that global oil demand hit a record 103 million barrels per day in June due to strong summer air travel, high energy consumption and high demand Chinese petrochemicals,” they claimed.
“Refining runs have been reduced by high temperatures in the Northern Hemisphere, higher frequency of unplanned outages in the US and Middle East refinery start-up difficulties. The combined low-yield runs with high demand have generated tight product inventories heading into peak hurricane season,” they added.
Looking at macro factors in the report, strategists noted that concerns were returning as optimism faded.
“After three straight weeks of gains, Brent speculator’s duration fell due to a surge in shorts,” strategists said.
“China’s slow recovery continues to lead the macro narratives, as both imports and exports fell year-on-year in July, down 12.4% and 14.5%, respectively. China’s economy is particularly notable, as the IEA makes them responsible for more than 70 percent of demand growth by 2023,” they added.
In the report, Macquarie strategists noted that WTI speculative duration grew while Brent fell over the past week, with “WTI up 5.5k and Brent down 5.1k”.
“WTI speculator long maintained its upward trajectory led by an increase in long positioning with a long/short ratio move from 3.24 to 3.22,” the analysts said.
“The reversal in Brent flow was driven by a larger increase in shorts than longs. Brent trading duration continued to decline, but at a slower pace, with contracts down 7.2k compared to 20-40 thousand in the last two weeks,” they added.
In a separate report sent to Rigzone on Tuesday, Standard Chartered analysts said oil prices appear to be well supported and the downside from China’s negative macroeconomic headlines has been relatively contained so far.
“Front-month Brent hit a five-month high of $88.10 a barrel intraday on Aug. 10 and settled at $86.21 a barrel on Aug. 14, a weekly gain of 0.87 dollars per barrel,” Standard Charted analysts noted in the report. .
“Volatility remains muted, with 30-day annualized Brent volatility at 21.9 percent on Aug. 14. It hit an 18-month low of 21.4 percent on Aug. 9,” the analysts added.
Analysts at Standard Chartered noted in the report that their balances imply that the “large” inventory will peak at 2.9 million barrels per day in August. Analysts estimated in the report that June demand was about 0.5 million bpd below the record high in August 2019, but added that they expect the record to be surpassed this month.
In another report sent to Rigzone on August 8, Standard Chartered analysts noted that the oil market reacted negatively that day to the first release of China’s July trade data.
“China’s crude imports fell 2.412 million barrels per day month-on-month to a six-month low of 10.429 million barrels per day,” analysts said in the report.
“However, given that June’s imports were the second highest on record and inventory building appears to have been brisk, we do not believe that the large month-on-month decline provides a useful signal about the path of economic recovery in the China,” the analysts added. the report
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