The oil market was under significant pressure yesterday. ICE Brent closed down 4.19% on the day and traded at its lowest level since July. Meanwhile, NYMEX WTI settled below $80 a barrel for the first time since August. The market is clearly less concerned about the potential for supply disruptions in the Middle East and is instead focused on easing the balance. Immediate time spreads have weakened, suggesting a less tight physical market. And while there are clear demand concerns hanging over the market, supply dynamics have also played a role. For example, Russian seaborne crude oil exports have increased in recent months, suggesting that Russia is not meeting its additional voluntary cut.
The recent price weakness is likely to lead to increasing noise from OPEC+ and, in particular, Saudi Arabia. While Saudi Arabia and Russia confirmed they would continue their additional voluntary cuts until the end of the year, they are increasingly likely to extend them into the new year if this downward pressure continues. The Saudis would like to keep Brent above $80 a barrel, as that is roughly where their fiscal breakeven price is. Our oil balance shows that the market will be in surplus in 1Q24, so we could certainly see more cuts.
The weakness seen yesterday is likely to continue today. API released inventory numbers overnight that were bearish. US crude oil inventories increased by 11.9 million barrels over the past week, while Cushing crude oil inventories grew by 1.1 million barrels. In the case of refined products, gasoline inventories decreased by 400 Mbbls and distilled fuel oil inventories increased by 1MMbbls. The more closely watched EIA inventory report will be released later today.
In the EIA’s latest Short-Term Energy Outlook, there was little change to U.S. crude oil production estimates. U.S. crude oil production is expected to average 12.9 million barrels/day this year, up 1 million barrels/day year-over-year, while supply growth is expected to be much more modest next year, increasing by less than 250 million barrels/day to an average of 13.15 million barrels/day.
Chinese October trade data released yesterday showed a trade surplus drop last month with weaker exports. However, imports were stronger, including crude oil. Crude oil imports averaged 11.58 million barrels/d for the month, up 3.7% month-on-month and up 13.5% year-on-year. This leaves accumulated imports for the year at 11.41MMbbls/d, a year-on-year increase of 14.4%. The increase in imports throughout this year may reflect a recovery in domestic demand, although there will also be a considerable build-up of stocks.