The oil market ended yesterday little changed, with ICE Brent still hovering around $90 a barrel. The tension in the market and expectations that this will continue until the end of the year suggest that prices will remain well supported.
However, where there is even more strength in the oil market is in middle distillates, where fast cracking ICE diesel is trading above $40 a barrel, while the total price is once again above $1,000 a ton . Although to be fair, this is the September 23rd contract, which expires today. However, there is strength across the curve with the market deeply lagging, highlighting the tightness of the market at the moment. Reports that Russia will reduce seaborne diesel exports by around 25% in September due to refinery maintenance and to ease domestic fuel prices have only provided further upside. The concern for the market is that in most regions inventories are tight as we approach the northern hemisphere winter, a period when we typically see increased demand for middle distillates. Therefore, We think middle distillates are likely to continue to be well supported in the coming months.although this rigidity suggests that the market will also be volatile.
European gas prices remain well supported; The TTF rose by around 3.9% yesterday. Australian LNG strike will be supportive; however, long maintenance in Norwegian fields is probably the most important factor. Maintenance work has been expanded again at the Troll field, which is impacting around 125mcm/day. These works are expected to continue until September 13 and then capacity will gradually recover over the coming days and weeks. Norwegian flows are currently around 135 mm3/day, up from 330 mm3/day in mid-August.
Looking ahead to today’s calendar day, OPEC will release its monthly oil market report, which will include August production figures for the group, along with its latest outlook for the oil market. The report is likely to continue to show expectations that the market will tighten for the rest of the year. Later that day, the EIA will release its Short-Term Energy Outlook, which will include its latest U.S. oil production estimates for this year and 2024. Given the downward trend in U.S. drilling activity. In the US, it is difficult to see major upward revisions to production estimates.