In a recent report sent to Rigzone, analysts at Standard Chartered noted that in their view there were two main talking points for oil markets last week, “one top-down and one bottom-up “.
“The macro consideration is the latest Federal Open Market Committee (FOMC) meeting, with its positive message for the economy but its negative message for asset markets due to an implied longer wait for to policy rate cuts,” analysts said in the report.
“In our view, the added uncertainty generated by the Fed makes it much less likely that major OPEC producers will relax production cuts this year,” they added.
“We expect oil producers to come to the conclusion that it is still too early to relax their cautious stance in the context of the market,” analysts said.
Standard Chartered representatives noted in the report that the other talking point was “the low level of crude oil inventories at the Cushing, Oklahoma WTI price point.”
“In short, Cushing is a collection of about 16 storage terminals spread over 2,000 hectares. About four million barrels per day of pipeline capacity arrive at Cushing and 3.3 million barrels per day [of] capacity exits, making it the key nexus for production in the Rockies and the Permian,” the analysts said in the report.
“Cushing inventories have fallen in 11 of the past 12 weeks, losing 20.3 million barrels to hit a 14-month low of 22.9 million barrels,” they added.
“The minimum operating requirement (min-op), below which operational efficiency deteriorates and WTI spreads would likely become very high and volatile, is likely to be in the 21-22 million barrel range,” analysts warned.
Inventories have not been below 20 million barrels since 2014, analysts noted in the report, “when min-op was lower (total shell capacity was more than 10 million barrels lower in 2014 than now)”.
“The post-2014 low was 21.3 million barrels in July 2022, just 1.6 million barrels below the current level,” the analysts said in the report.
“We believe the pressure on Cushing inventories is such that there is a high probability of a significant disruption to WTI prices,” they added.
“Helped in part by the Cushing draw, the Energy Information Administration’s (EIA) latest weekly release was upbeat according to [our] Bullish US oil data index, which rose 107.3 week-on-week to +35.6. The crude oil balance was dominated by a three-million-barrel-a-day week-over-week drop in net imports,” the analysts said.
In its latest report, Standard Chartered noted that its US oil data index has been rated bearish 22 times, neutral 17 times and bullish 13 times in the past year. The expected number of bearish, neutral and bullish categorizations for the past year were 20.8, 10.4 and 20.8, respectively, according to the Standard Chartered report.
