In April 2024, Brent crude oil futures broke through $90 per barrel, achieving the first time since October 2023 that crude oil futures prices rose above $90, much to the surprise of many market participants. Since the beginning of 2024, despite the continuous volatility of international oil prices, OPEC+ has not taken further aggressive actions, and there has been no major improvement in market demand. At present, market participants are divided on the situation of the international oil market in the second quarter and the second half of 2024.
The international oil price rose above $90 in the consolidation
In 2023, despite the continued geopolitical turmoil and OPEC+ increasing production cuts, the international oil market is still facing supply-demand imbalances and price pressures. On December 29, 2023, Brent crude oil futures closed at $77.04 per barrel and WTI closed at $71.65 per barrel, both below the opening price on the first trading day of the year.
In a pessimistic atmosphere, the international oil market enters 2024. In early January, the international oil market continued the sluggishness at the end of 2023, with WTI futures opening at $71.67/barrel on January 1 and Brent crude futures at $77.39/barrel on January 2. On January 2, WTI closed below the opening price of the first trading day, but also closed at the lowest price since 2024 at $70.38 per barrel, and on January 8, Brent crude futures closed at $76.12 per barrel, lower than the opening price of the first trading day and the lowest price since 2024.
In the two months from mid-January to mid-March this year, international oil prices began to rise after the weakness at the beginning of the year, but the increase was limited. Since March 13, the rise in international oil prices has accelerated and has maintained a steady upward momentum. On April 4, Brent crude futures broke through the $90 per barrel level to settle at $90.65 per barrel, and WTI crude futures broke through the $85 level to settle at $86.59 per barrel.
On April 8, international oil prices corrected, with Brent crude oil futures closing at $90.38 per barrel, down $0.79 per barrel, and WTI futures closing at $86.43 per barrel, down $0.48 per barrel.
Compared to the opening price on the first trading day of 2024, on April 8, 2024, the price of Brent crude oil futures increased by $12.99 per barrel, or 16.78%; WTI futures rose by $14.76 a barrel, or 20.59%.
OPEC+ members have taken no further drastic action
As the de facto equalizer of today's international oil market, OPEC+ members have not taken further aggressive actions since entering 2024. So far, OPEC+ has held only two meetings of the Ministerial Market Oversight Committee, but has not made further decisions on oil production. On March 3, 2024, eight countries, including Saudi Arabia and Russia, announced that they would continue to reduce voluntary production by an additional 2.2 million barrels per day in the second quarter of 2024, extending the voluntary production cuts in the first quarter.
The oil production of OPEC+ countries in 2024 will be affected by two important events that will occur in 2023. First, on April 2, 2023, nine countries, including Saudi Arabia and Russia, announced that they would voluntarily cut production by 1.66 million barrels per day, which will last from May to the end of 2023. On November 30, 2023, the OPEC Secretariat issued a notice that eight countries, including Saudi Arabia and Russia, announced that they would voluntarily cut production by 2.2 million barrels per day from January to March 2024. Second, the 35th OPEC+ Ministerial Meeting held on June 4, 2023, decided that the crude oil production of OPEC+ countries in 2024 will be 40.46 million barrels per day.
OPEC+ members extended an additional voluntary production cut of 2.2 million b/d in the second quarter of 2024, arguably the most significant OPEC+ action since 2024, according to an OPEC+ announcement on March 3, 2024.
On April 3, 2024, the 53rd meeting of the OPEC+ Ministerial Market Surveillance Committee also did not make a decision on oil production, and the main content was twofold: one is to confirm that Russia's voluntary production cuts in the second quarter of 2024 are based on production rather than exports, and the other is that the market supervision committee said that it will be based on the 35th OPEC+ to be held on June 4, 2023The Ministerial Meeting monitors oil production in participating countries in relation to crude oil production in 2024, voluntary production cuts by nine countries on April 2, 2023, and voluntary additional production cuts by eight countries in November 2023 and February 2024.
The market is divided on the short-term international oil situation
For the accelerated rise in international oil prices since mid-March 2024, market participants generally believe that the main reason is the tension caused by geopolitical factors, especially the continuous escalation of tensions in the Middle East. However, there is currently a large disagreement among market participants on the international oil market situation in the second quarter and the second half of 2024, and the following two views are the most representative.
First, we remain cautious about the outlook for oil prices.
On April 4, Oil Price.com reported that "oil prices soared to $90 per barrel, and Wall Street remained on the sidelines." The article notes that after surging 11.5% in the past 30 days, the energy sector has the strongest momentum among the 11 market sectors in the United States, but most Wall Street analysts' forecasts for second-quarter oil prices fell short of expectations.
After a slow start to the year, the energy sector has become a sector to watch. Escalating geopolitical tensions have sent crude oil futures soaring to highs. The West Texas Intermediate (WTI) crude April futures have recovered to $86.76 per barrel, and Brent crude May futures have risen to $90.98 per barrel. The energy sector surged 11.5% over the past 30 days, making it the biggest gainer among the 11 market sectors in the United States. In contrast, the utilities sector was the second-largest gainer, rising just 6.6%, while the S&P 500 was up just 1.3% over the same period.
Robert Jager, head of Mizuho Energy, Japan's second-largest financial institution, said it was "headlines, not fundamentals" that boosted WTI. He added that by far the biggest impact of the geopolitical situation has been the increase in the cost of transportation and insurance for ships under sail.
Not all analysts believe that the rise in oil prices is driven by news and market sentiment. Commodity analysts at Standard Chartered Bank predict that the fundamentals of the oil market remain strong and that oil prices will trade just below $90 a barrel. They believe that OPEC has enough room to increase production in the third quarter without leading to an increase in inventories or weaker prices.
However, Wall Street remains cautious about the outlook for oil prices, with analysts forecasting Brent crude oil prices at $94 per barrel in the second quarter, the only one above $90 per barrel among Wall Street's 34 forecasts. Standard Chartered noted that a bearish view on oil prices is justified if fundamentals are weak, inventories are high, OPEC+ policy is uncertain, or geopolitical conditions are moderate. If none of these conditions hold, and the fundamental data tightens, the year-to-date rally rise closer to $15/b could finally be a sign that the bulls have run ahead.
On March 29, U.S. Energy Information Administration data showed that U.S. crude oil production hit a record high of 13.295 million barrels per day, equivalent to the average daily production of the United States in November and December 2023. However, Standard Chartered predicts that U.S. crude oil production will remain flat and is not likely to exceed all-time highs until August and October 2024.
Standard Chartered believes the U.S. market saw a supply gap of more than 1.7 million b/d in February and March, with a seasonal recovery in demand offsetting a recovery in U.S. oil production from its January lows. Commodity experts estimate that inventory drawdown in the first quarter of 2024 was 1.12 million barrels per day, resulting in a significant decline in inventories compared to the inventory increase in the first quarter of 2023. Standard Chartered has attributed the current sustained rise in oil prices to a decline in inventories of 3 million barrels per day since the first quarter of 2023 and expects further increases in oil prices in the second quarter of 2024.
Fortunately, a segment of Wall Street is starting to take an interest in oil and gas stocks. Energy stocks are currently the most crowded quantifier in the U.S., according to Citigroup, noting that the sector tends to underperform when it becomes hot in the next one to six months. However, not everyone is convinced of the tremendous momentum in the energy sector. Morgan Stanley remains pessimistic about U.S. equities in general, but upgraded energy stocks from neutral to overweight, noting that energy stocks have underperformed oil and that the sector is well valued.
"Given the Fed's recent message, and assuming it's less concerned about inflation or looser financial conditions, commodity-oriented cyclical stocks, especially energy stocks, could rebound," the article concluded. ”
Second, we are still optimistic about the oil market in the short term.
On April 8, Oil Price.com reported that "bullish sentiment has dominated the oil market." The article argues that the boom and bullish bets in financial markets are pushing oil prices higher, while strong demand, especially expected to emerge in the second half of the year, is supporting the surge. In addition, OPEC+ production cuts and limited spare capacity could lead to tight supply.
As more and more market participants are bullish on crude oil, fundamentals and geopolitical factors pushed oil prices above $90 per barrel last week. Mike Mueller, head of Asia at Vidor, the world's largest independent oil trader, said that after nearly a year of risk-averse wait-and-see, a growing number of financial market participants now believe that oil is worth buying.
With Brent crude oil prices breaking above $85/b earlier this month and then breaking above $90/b, some short sellers decided to pull out of their positions, while the fundamentals of current supply issues and the expected strong demand, especially in the second half of the year, are driving an increase in long oil positions.
"The market doesn't have to be tight right now, but most of the advisers, experts, advisors are calling for a withdrawal from the equity market later this year, which provides a solid foundation for fundamentals," Mueller said. He added: "Fundamental changes in the oil market have taken a back seat to capital flows, and financial markets have convinced themselves that this is an opportunity to buy." ”
Source of this article | Sinopec News
The author of this article | Wang Nengquan is a member of the Expert Advisory Committee of the National Energy Commission and the former chief economist of Sinochem Energy Co., Ltd