Following the sharp sell-off in the market over the past three weeks, oil has managed to find some support. In fact, ICE Brent closed yesterday with an increase of just over 1.3%. As we said last week, we believe that the magnitude of the downward movement in recent weeks has been extreme. While the fundamentals may not be as optimistic as initially thought, they remain favorable, and the market is likely to be in deficit for the remainder of this year. The surplus we will see early next year could even be erased if the Saudis suspend their additional voluntary supply cuts.
OPEC released its latest monthly oil market report yesterday, which does not suggest any concerns when it comes to demand. Instead, the group made some marginal upward revisions to its demand forecasts. OPEC forecasts that demand will grow 2.46 million barrels/d this year and 2.25 million barrels/d in 2024. This figure is much more aggressive than the IEA, which last month predicted that demand would grow a little less than 1 million barrels/d in 2024. OPEC figures suggest that OPEC oil demand in 4Q23 was around 30.9 million barrels/d, while OPEC produced 27.9 million of barrels/d in October. As for 2024, OPEC oil demand would be 29.9MMbbls/d. These figures indicate that OPEC believes the oil market will remain tight for the rest of this year and much of 2024.
One factor that could help alleviate some of this expected tension is the restart of oil flows from the Kurdish oil fields to the port of Ceyhan in Turkey. Talks are underway in a bid to restart oil exports that could deliver around 500 million barrels a day to the market. Exports were stopped in March after a legal dispute when a court ordered Turkey to pay compensation to the Iraqi government for allowing these exports without Iraqi government approval.
Kuwait’s Al Zour refinery has suffered an unplanned shutdown. The refinery is now facing a disruption to fuel and gas supplies. The refinery could take up to 10 days to resume operations. The 615 Mbbls/d refinery has been ramping up operations in recent months, but has suffered some setbacks, including a fire in July. The refinery is a large producer of very low sulfur fuel oil (VLSFO).
On today’s agenda, the IEA will publish its latest monthly report on the oil market and the market will be eager to see if the agency makes any revisions to its demand estimates given recent concerns about the demand outlook. Today’s other big release comes from external commodity markets: specifically, the US CPI for October. Headline inflation is expected to fall from 3.7% year-on-year to 3.3% year-on-year and any upside surprise would likely put some pressure on risk assets, including commodities. Higher inflation would reinforce the narrative that interest rates will be higher for longer.