Oil remains steady at over $80 per barrel level on mixed economic data

Muscat: Crude oil prices remained elevated and traded in a tight range at over $80 per barrel level over the last few weeks on mixed economic data, geopolitical concerns as well as controlled oil supply, according to a new report.

“The speculations relating to the timing of a rate cut in the US and by other central banks globally also kept crude oil and other asset classes on tenterhooks,” Kamco Invest said in its ‘Oil Market Monthly Report March 2024’.

The crude oil market got support from the ongoing geopolitical situations in the Middle East and the escalation of war between Russia and Ukraine as these could result in supply disruption for oil and other commodities, the report further added. Temporary support also came after data from China showed higher y-o-y import of crude oil in China during January 2024 and February 2024, although total imports were smaller than in previous months, indicating a declining trend in purchases by China. This comes as concerns continue to remain on extended economic weakness in China despite several measures and sops offered by the government over the last few months.

“A sneak into softer demand trends was also seen when Russia decided to lower production during the second quarter of 2024 based on expectation for global oil demand growth,” the Kamco report said. The country has kept its production target for the year at 9.5 million barrels per day (mbpd) and slashed production during Q2-2024 by 471,000 barrels per day. A report from Bloomberg showed that Russia plans to cut output by 350,000 barrels per day (bpd) in April 2024 but increase exports from planned cuts of 500,000 barrels a day to 121,000 barrels a day. Cuts in May 2024 are planned at 400,000 bpd and export curbs of 71,000 bpd while the entire 471,000 bpd of cuts in June 2024 will come from output reduction.

On the other hand, prices of refined products could come under pressure in the coming weeks after several incidents of disruptions at a number of global refineries. This includes the fire at ExxonMobil’s Port Jerome refinery in France, TotalEnergies halt of a refining unit section in France, hiccups at BP’s refinery in Whiting, the drone attacks on Russian oil refineries over the last week and a pipeline leak and subsequent unit shutdown of TotalEnergies refinery in Texas.

In addition, late last month, Russia announced a six-month ban on gasoline exports starting March 2024 aimed at keeping prices stable in the domestic market. The aforementioned was reflected in the prices of gasoline in the US which is up more than 20 percent this year while diesel prices in Europe are up by 10 percent. The shortages of refined products are somewhat offset by exports from Nigeria’s Dangote refinery, although the refinery is yet to reach peak capacity.

Moreover, China is also seeing an increase in exports of refined products due to weakness in the domestic market.
In terms of production, data from the US showed a small decline of 100,000 bpd in crude oil output that reached 13.2 mbpd during the week ended 1-March-2024 after staying elevated at 13.3 mbpd for the previous five weeks. Oil output from the Opec group increased slightly mainly led by resumption of production in Libya which more than offset the decline in bigger producers in the group.

Oil prices
Crude oil futures traded in a very tight range over the last few weeks above $80 per barrel. Prices reached around $83 per barrel on 12 March 2024 mainly reflecting geopolitical issues in the Red Sea as well as disruption in Russia, the Kamco Invest report said. The options on crude oil indicate bullish bets at prices of over $90 per barrel in the months ahead, according to data from Bloomberg, betting on curtailed supplies from Opec and an increase in demand.

The extension to Opec+ cuts until the end of Q2-2024 had only a minimal impact on prices as speculations on lower-than-expected demand in China offset the impact. Expectations of weak economic growth in China capped further gains although exports during the first two months of the year showed year-on-year (y-o-y) growth. These trends were also seen in the demand for jet fuel in China. The latest Bloomberg weekly report showed a marginal dip in global passenger jet fuel demand after growth in Eastern Europe, North America and Sub-Saharan Africa offset by a decline in other regions, mainly China. Oil prices were also affected by the lack of clarity on the future course of rate cuts in the US with data largely pointing to a delay in cuts that was expected at the start of the year as well as speculation over the number of cuts this year. Meanwhile, the latest data on the US job market showed that job growth accelerated in February 2024; however, an increase in the unemployment rate and moderation in wage gains indicates that a rate cut is still possible in June-2024.

Prices of almost all crude grades reported gains for the second consecutive month during February-2024. Average spot Brent crude oil price was up by 4.5 percent to reach $83.9 per barrel during February-2024 as compared to $80.3 per barrel during January-2024.

The gain in average Opec reference basket price was much smaller at 1.5 percent to reach $81.2 per barrel while Kuwait export grade crude witnessed a marginal monthly gain of 0.3 percent to average at $81.1 per barrel during February-2024, the Kamco Invest report. Meanwhile, the consensus estimate for Brent crude underwent minimal changes from last month’s forecast with prices expected to average at $82.3 per barrel in Q1-2024 and show gradual growth until Q4-2024 to reach $84 per barrel. Price forecasts from the US EIA showed a steep upgrade for Brent which is forecasted to reach $87 per barrel in 2024 vs. $82.42 per barrel in the previous forecast.

World oil demand
Global oil demand growth forecast for 2024 was kept unchanged by the Opec in its latest monthly report at 2.2 mbpd with demand expected to average at 104.5 mbpd during the year. However, adjustments were made to demand growth data for OECD Asia for Q1-2024 with a downgrade due to expected lower performance in the manufacturing and petrochemical sectors in Japan and South Korea. However, an upward revision to demand data for India and Other Asia regions reflecting higher demand during the quarter fully offset the downward revision. For 2025, demand growth forecast was also kept unchanged at a growth of 1.8 mbpd with demand expected to average at 106.3 mbpd during the year.

Oil demand in the US is expected to be supported mainly by transportation fuels and light distillates. According to Opec, US oil demand is expected to increase by 168,000 bpd during 1H-2024 mainly backed by demand for jet/kerosene, gasoline and LPG that would be partially offset by subdued demand for diesel as the industrial/manufacturing sector remains in contraction. For OECD Europe, recent forecasts show slight economic improvement towards the close of the year. Once again, demand is expected to be supported by transportation and air travel activity.

Oil demand in China showed growth with total imported crude oil increasing by 5.1 percent y-o-y during January-2024 and February-2024 to reach an average of 10.74 mbpd led by higher buying by refiners to meet rising demand during lunar new year holiday.

Demand for aviation fuel and gasoline was high during January-2024 that flowed through February-2024 that resulted in higher refinery runs from state refiners. Private independent refiners, however, lowered run rate in February-2024 due to thinning margins. Demand in India also increased during February-2024, according to oil ministry data. Fuel consumption in the country increased by 5.7 percent y-o-y during February-2024 to reach 4.98 mbpd led by strong factory activity during the month. The m-o-m increase came in at 5.1 percent as compared to total consumption of 4.74 mbpd in January-2024. Demand for all refined products saw growth during the month including gasoline, diesel, fuel oil and LPG.

World oil supply
Non-OPEC oil supply (liquids production) growth forecast for 2024 was once again lowered by 120,000 bpd by the Opec in its latest report. Supply is now expected to grow by 1.1 mbpd and average at 70.5 mbpd, including 50,000 bpd of processing gains.

The downward revision reflected the recently announced extension of additional voluntary production cuts by Opec+ countries until the end of Q2-2024. The revisions included downward revisions to supplies from Russia (-95,000 bpd), Kazakhstan (-13,000) and Oman (-10,000). The latest monthly short term outlook report from the US EIA suggested even higher output from the US this year. As per the report, crude oil output is expected to increase by 13.19 mbpd in 2024 vs. the previous forecast of 13.1 mbpd followed by 13.65 mbpd in 2025.

Crude oil exports from Russia witnessed a spike recently, despite the announcement of further cuts as per the Opec+ agreement. A Bloomberg report showed that seaborne crude exports increased to the highest level this year from the Pacific port of Kozmino during the week of 10-March-2024 following disruptions in loading due to a storm during the previous week. In addition, crude oil shipments that were previously meant for Indian consumers and were shunned due to implementation of US sanctions is said to be getting buyers especially from private refiners in China.
For 2025, non-OPEC liquids supply growth forecast stood at 1.4 mbpd and total supply is expected to reach 71.9 mbpd during the year. The forecast for 2025 was largely unchanged and reflected the change in base for 2024.