Sentiment in the oil market remains constructive after Saudi Arabia and Russia decided to extend their voluntary supply cuts by three months. ICE Brent managed to rise yesterday, reaching 90.60 dollars/bbl, while the Brent Dec’23/Dec’24 differential continues to increase, reaching a backwardation of 7.28 USD/bbl, compared to less than 4 USD/ bbl at the end of the year. August. The strength of the temporary spreads clearly indicates the rigidity of the oil market. Our balance shows that the market remains in a deep deficit until the end of the year, before posting a small surplus again in 1Q24. While this surplus may lead to some price weakness early next year, we believe it will be short-lived and the market will return to deficit by the end of 2024.
Following the extension of the Saudi cuts and the tight market, it came as no surprise that Saudi Arabia raised its official selling prices (OSPs) for most grades of its crude in most regions. Flagship Arab Light in Asia saw its OSP increase by $0.10/bbl mom to $3.60/bbl above the October benchmark, the highest level seen so far this year. All other grades in Asia also saw increases, while similar steps were taken for grades in the US and the Mediterranean. Europe was the only region to experience some relief, with OSP cuts for all grades.
API data released overnight was constructive, showing US crude oil inventories fell by 5.5 million barrels, more than the roughly 2 million barrel drop the market had expected. In addition, crude oil inventories at the WTI delivery hub, Cushing, decreased by 1.35 million barrels. On the product side, gasoline stocks fell 5.1 million barrels, while distillates rose 300 million barrels. The increase in distillate stocks was marginal, but will help alleviate some concerns about low mid-distillate inventories as we head into the northern hemisphere winter. The EIA inventory report, more often followed, will be released later today.
Natural gas prices were under significant pressure yesterday, with the TTF falling nearly 10%. This is due to growing optimism that a strike at two of Chevron’s LNG facilities in Australia can be avoided. The partial strike was due to start today at Gorgon and Wheatstone. However, this has been delayed until tomorrow while the company and the unions continue to work towards an agreement. The two facilities account for around 6% of global LNG supply, so the market continues to closely follow these developments.
The European market will also have to cope with lower Norwegian gas flows for a bit longer than initially anticipated. Field maintenance on several fields, including Troll, has been extended by a couple of days. Total flows from Norway are around 137 million cubic meters per day, compared to more than 300 million cubic meters per day in mid-August.