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After a fairytale run that saw Brent temporarily cross the magic $ 80 / bbl for the first time in three years, the rally in crude came to a halt thanks to a surprise increase in crude inventories. On Tuesday, the American Petroleum Institute (API) reported an increase in crude oil inventories of 4.127 million barrels for the week ending September 24, contrary to analysts’ consensus of a loss of 2.33 million barrels. The API had reported a drop in oil stocks of 6.108 million barrels the week before, well above expectations of a 2.40 million barrels draw.
However, Brent fixed at 78.17 USD / bbl on September 30 for an aw / w gain of 4.25 USD / bbl, while WTI for November delivery rose from $ 4.11 / bbl w / w to $ 74.25 / bbl.
Despite the latest surprise build, it’s worth noting that U.S. oil inventories have declined by nearly 73 million barrels so far this year – well below pre-pandemic levels. The latest data from the US Energy Information Administration (EIA) suggests US crude oil inventories are now 8% below the five-year average for this time of year, at 414 million barrels .
Standard Chartered’s commodities office has offered a rather bearish outlook for oil prices, arguing that the fundamental argument for USD 80 / bbl is not stronger today than it was a few years ago. month.
The technical side
According to Stanchart strategists, Brent’s move seemed to come straight out of a technical trading manual; the market held key support last week, then recorded a double interior day (consecutive days of higher highs and lower lows) before breaking through the 2021 high and soaring further higher.
The upward movement also reflected the development of broader risky asset markets, particularly reflecting the 10-year US Treasury bill market. Gains continued along the oil price curve, with higher values reversing their recent weakness. Brent for five-year delivery gained USD 2.61 / bbl w / w, hitting a three-month high of 59.66 / bbl on September 27. Oil prices burst higher with Brent breaking above $ 80 / bbl thanks to very positive technical factors and favorable multi-asset developments helped the move to $ 80 / bbl stay this time, unlike the surge. stuck on the upside in early July and subsequent weakness. In the 12 weeks after the failed hike, prices fell 13 USD / bbl before rising from 16 USD / bbl to 80 USD / bbl.
Stanchart, however, says he remains skeptical that the underlying argument for USD 80 / bbl is stronger today than it was in early July. Indeed, analysts say market balances have weakened in the meantime. Market expectations of a strong pull in global equities in July were not met, and August and September appear to be posting small global surpluses, as global demand has remained stable since June.
The positive change in market sentiment towards oil fundamentals appears to be a cross between the strength of international gas markets, particularly the sensitivity of markets to a potentially colder-than-normal winter in the northern hemisphere. Despite mixed weather forecasts, Stanchart says the market may be pricing below average temperatures and exaggerating the increase in demand for oil due to gas substitution. Overall, a significant climate risk appears to be built into current prices.
Comparing the medium-term weather forecast to the colder conditions the market anticipates in, the associated price risk appears to be on the downside.
Biden administration steps in
With the next OPEC + meeting scheduled for October 4, the big question at this point is whether ministers will want to appear to be doing more to cap prices.
In August, Biden urged OPEC + to do more to control prices at a time when Brent was around $ 8 / b below current levels. This intervention came right after an OPEC + meeting and appeared to be primarily aimed at a national American audience. According to Stanchart, the Biden administration likely repeated this point privately to major producers ahead of the next OPEC + meeting and will expect more response than it got in August when OPEC + took refused to increase production. Related: Commerce Department Delays Critical Decision on Solar Panel Tariffs
Indeed, analysts say there is a good chance that the administration will allow the release of the strategic oil reserve if OPEC + again disappoints and prices continue to climb. In August, for the first time in four years, the Energy Ministry authorized the release of part of its strategic oil supply to combat a major fuel shortage in Louisiana after Hurricane Ida.
Production on the rise
Another thing to watch out for is the increase in oil production.
U.S. oil production had fallen by more than one million bpd in the past two weeks, but crude production increased for the week ending September 17, to 10.6 million bpd, with over 84 % of Gulf of Mexico oil producers finally back online after Hurricane Ida made landfall at the end of August.
The number of U.S. oil rigs increased 10 w / w to a 17-month high of 421 for the week ended 24
September, according to the latest Baker-Hughes survey, marking the first
double-digit increase since April 2017. Four of the 17 rigs in Louisiana slowed down by Hurricane Ida became active again (three offshore and one onshore), leaving nine rigs still inactive.
In areas unaffected by Ida, the main gain w / w was the increase of four Oklahoma drilling rigs, bringing the state’s number of oil rigs to 38. In the Permian Basin of West Texas and New Mexico, the number of Delaware Basin drilling rigs increased by two, while the Midland Basin rig count decreased by one, and the other Permian activity remained unchanged at 21 devices.
Meanwhile, Libya remains a wild card, with Libyan Oil and Gas Minister Mohamed Oun recently announcing that the country’s crude oil production has increased to 1.3 mb / d, the highest since April 2013. The Libyan government aims to increase production quickly, although this will
require investments to modernize and maintain war-damaged facilities and
underinvestment. Libya remains free from OPEC + quotas, so any increase in production will be added to the current OPEC + clip of 400,000 bpd per month.
By Alex Kimani for Oil Octobers
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