The oil price rally has continued apace in September, Standard Chartered analysts noted in a new report sent to Rigzone on Tuesday.
In the report, analysts note that this development has come “as physical markets have tightened, following what we estimate was a supply shortfall of 3.0 million barrels per day in August “.
“The past seven trading days have seen new year highs for first-month Brent, most recently a 10-month high above $95 a barrel,” the analysts said in the report.
“There have been higher intraday highs over the past eight trading days and over 16 of the past 18 trading days,” they added.
Analysts noted in the report that WTI prices have shown a similar pattern, “with higher intraday highs for 16 of the past 17 trading days and a 10-month high above $92 a barrel.”
“Meanwhile, the OPEC crude basket hit $96.93 a barrel on September 18, more than $26 a barrel above the year-to-date low,” they added.
Analysts at Standard Chartered said in the report that the rise in oil prices has been associated with a sharp drop in volatility as prices have been steadily rising.
“Brent 30-day annualized realized volatility was at a 26-month low of 16.2 percent at the September 18 settlement. Volatility has only been lower on two days since the start of 2020” , analysts said in the report.
“The latest rally in prices has also seen the first significant withdrawal of funds from money managers during the rally,” they added.
“Our Crude Oil Money Manager Positioning Index rose 11.5 weeks week to a 30-month high of +3.6. Meanwhile, money manager long totals in the main Brent and WTI contracts rose 44.8 million barrels to an 18-month high of 595.5 million barrels and money manager shorts fell 1.7 million barrels to a five-month low of 115.2 million barrels,” the analysts continued.
Fourth Quarter Basics
In the report, Standard Charted analysts noted that views on fourth-quarter fundamentals remain “far apart even two weeks into the quarter” and noted that the latest round of reports of monthly balance “has only widened the gulf between the main agencies” forecasts”.
“The most bearish view for Q4 is from the Energy Information Administration (EIA), which forecasts a Q4 OPEC call and inventories (ie, the level of OPEC production that would maintain global inventories unchanged) of 27.8 million barrels per day, analysts said in the report.
“This is within the range of OPEC production estimates for July. The OPEC Secretariat’s survey of secondary sources puts OPEC production at 27.45 million barrels per day, the The International Energy Agency (IEA) estimates it at 27.96 million barrels per day and the EIA estimate is 27.03 million barrels per day,” they added.
“Broadly speaking, the EIA’s forecast implies a roughly balanced market with a significant possibility of a surplus if OPEC production rises or if demand disappoints,” they stated.
Analysts noted in the report that, “at the other end of the scale,” the OPEC Secretariat is forecasting a fourth-quarter OPEC call of 30.7 million barrels per day.
“The additional 2.9 million bpd above the EIA estimate is roughly evenly split between a higher demand forecast and a lower non-OPEC supply forecast,” the analysts said in the report.
“In sharp contrast to the EIA’s forecast, the OPEC Secretariat’s forecast implies a very high probability of a large global stock draw. The IEA’s forecast falls between the two extremes, of 29.0 million barrels per day, after a downward revision of 0.9 million barrels per day in the last report,” they added.
Analysts noted in the report that the IEA’s estimate is close to Standard Chartered’s forecast of 28.8 million barrels per day.
“We expect global inventories to draw 1.3 million bpd in the fourth quarter, a slowdown from our estimate of a draw of 2.1 million bpd in the third quarter,” they said in the report.
“We expect the draws to continue through the first half of 2024, with OPEC’s call increasing by 0.8 million bpd quarterly to 29.6 million bpd in the first quarter and increasing by 0.5 million bpd per day quarterly to 30.1 million barrels per quarter. day in Q2,” they added.
Oil price
In a separate report sent to Rigzone last week, analysts at Standard Chartered said oil prices had been pushed higher in the third quarter by sharp declines in inventories caused by excess demand.
“We expect this momentum to continue in the fourth quarter,” the analysts said in that report.
“According to our supply and demand model, global inventories rose by 203 million barrels in the second half of 2022. In stark contrast, we forecast global inventories to fall by 313 million barrels in the second half of 2023,” they add.
“We expect drawings to average 1.4 million barrels per day in the fourth quarter. While this is lower than the average draw of 2.0 million barrels per day in the third quarter and the peak of August 3, 1 million barrels per day, represents significant additional tightening from an already low inventory base,” the analysts said.
In this report, Standard Chartered analysts highlighted that their forecast for the Q4 ICE Brent average is $93 per barrel.
“This forecast has not changed over the past 15 months despite Brent trading in the $50 per barrel range during that time,” the analysts said in the report.
“Given that flash prices are now within the forecast range and we believe the fundamentals will remain very supportive, we see no reason to change. However, we caution that our forecast is a period average rather than a spot forecast and therefore does not rule out a peak within the fourth quarter above $100 per barrel,” they added.
“We believe the main fundamental uncertainty is the potential upside risk to our fourth quarter demand estimates, adding another potential layer of price support,” they continued.
This Standard Chartered report also projected NYMEX WTI crude oil to average $91 per barrel in the fourth quarter.
Standard Chartered’s 4Q ICE Brent and NYMEX WTI forecasts were unchanged in their latest report.
Looking ahead to the first quarter of next year, Standard Chartered projected in its latest report that ICE Brent would average $92 per barrel and NYMEX WTI would average $89 per barrel.
EIA price projections
In its latest Short-Term Energy Outlook (STEO), the EIA projected Brent spot prices to average $92.68 per barrel in the fourth quarter and $91 per barrel in the first quarter of 2024.
The WTI spot price will average $87.68 per barrel in the fourth quarter and $86 per barrel in the first quarter of next year, according to the September STEO.
In its previous STEO, which was released in August, the EIA forecast that Brent spot prices would average $87.65 per barrel in the fourth quarter and $88 per barrel in the first quarter of next year
The WTI spot price was expected to reach $82.65 a barrel in the fourth quarter of 2023 and $83 a barrel in the first quarter of next year, in the EIA’s August STEO.
“We expect Brent crude prices to average $93 per barrel in 4Q23, up from $86 per barrel in August,” the EIA noted in its September STEO.
“A decline in global oil inventories in the coming months supports the Brent price in our forecast. The price declines to an average of $87 per barrel for the second half of 2024 as we expect global inventories of oil prices rise during this period,” the EIA added to the STEO.
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