In a particularly tense geopolitical context, crude oil prices remained broadly stable last week before surging nearly $5/bbl last Friday when Iran’s foreign minister warned that Tehran-backed Hezbollah could open a new front in Israel’s war against Hamas if the blockade of Gaza continued. On average weekly, Brent crude oil prices in futures markets gained $0.5/bbl to $87.7/bbl, while WTI lost $0.2/bbl to $85.3/bbl.
Weekly analysis of the oil market
Brent stable despite geopolitical tensions and market volatility.
On the spot market, Brent lost $1/bbl to $90.5/bbl. Despite the absence of a significant influence on oil supply to date, the current geopolitical instability prompts market players to take measures to protect themselves from the risk of a possible price increase, that could result from a regional escalation of the conflict between Israel and Hamas. The oil volatility index (OVX) has thus risen sharply to exceed 44, its highest level since last March, a sign of the great uncertainty in the market.
However, the median crude oil price forecast for this quarter and the first quarter of 2024 has been revised upwards to $87.2/bbl and $87.5/bbl respectively. At the same time, the high forecasts were revalued by +$7.5/b to $103.6/b for this quarter.
IEA vs. OPEC: Two different visions of the global oil market in 2024.
In its latest monthly report, the IEA notes that, barring unforeseen disruptions, global oil production is expected to average around 101.3 MMb/d in the fourth quarter, thanks in particular to higher production from Nigeria and Kazakhstan. Crude oil production is projected to increase by +1.5 MMb/d year-on-year to an average of 101.6 MMb/d, thanks to the United States, which will contribute 1.3 Mb/d to global supply growth in 2023, or 65% of total non-OPEC growth+ (2 Mb/d this year). For next year, the IEA forecasts a substantial increase in global supply, mainly driven by the US (but to a lesser extent than this year) and other non-OPEC+ producers such as Brazil, Guyana and Canada. These four countries will contribute 65% to growth of 1.7 MMb/d in 2024, bringing global oil production to a new annual peak of 103.3 MMb/d.
In terms of oil demand, the IEA expects a strong growth trajectory to continue in the fourth quarter. For 2023 as a whole, average growth of 2.3 MMb/d is expected, bringing global demand to 101.9 Mb/d. According to the IEA, China remains one of the main drivers of this growth, with a 77% contribution. Globally, demand for oil is mainly driven by demand for kerosene and petrochemicals. In 2024, oil demand growth is expected to slow to 0.9 MMb/d, due to a more challenging economic climate and continued progress in energy efficiency, bringing global demand to 102.7 MMb/d. In this context, the market is expected to return to a surplus next year (+1.3 MMb/d in the first half of the year and +0.6 MMb/d over the year), which could force OPEC+ to maintain or even strengthen its policy of reducing production.
The IEA scenario differs from that of OPEC, which on the basis of the current agreements of OPEC+ members leads instead to a supply deficit of 1 MMb/d on average next year. OPEC estimates that oil demand in 2024 will increase by +2.2 MMb/d to 104.3 MMb/d, driven by solid global economic growth, with continued improvements in China. Growth is expected mainly in non-OECD countries (+2 MMb/d), particularly in the Middle East and Asia (China, India mostly).
USA: Crude stocks rise. Oil production at its highest.
Last week, US commercial crude stocks increased by +10.2 million barrels (against a consensus of -1.4 million barrels/+4.3 million barrels on average over 5 years. This increase was supported by exports of crude oil down -1.9 MMb/d and an increase in domestic crude production of +300 Mb/d to a record 13.2 MMb/d. On the product side, gasoline and distillate inventories are down, confirming a slight recovery in demand and exports.
Europe: relatively stable petroleum products market. Tensions on diesel.
In Europe, on the Rotterdam market, stocks of petroleum products fell slightly last week, mainly due to lower diesel stocks. The price of petroleum products increased by 0.2% for petrol and by 0.9% for diesel. The gas oil market in Europe remains tight, due to the Russian embargo and a decrease in exports from the United States and Saudi Arabia. In addition, the low water level on the Rhine puts additional pressure on distribution costs in Europe, bringing them closer to the peaks reached in July. The European refining margin remained stable last week at $6.3/bbl.
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