The international oil market was greeted on Monday (November 13, 2023) by crude producers group OPEC’s swipe at “overblown” damaging oil market sentiment in its newest month-to-month report.
Despite predictions of elevated threat premiums owing to battle within the Middle East and a joint Saudi-Russian output reduce of 1.3 million barrels per day (bpd), international proxy benchmark Brent has didn’t breach $100 per barrel ranges.
Quite the opposite, each Brent in addition to U.S. benchmark West Texas Intermediate have just lately shed most of their features since October 7 – the date hostilities broke out between Israel and Hamas in Gaza, after the latter launched an assault on the previous, frightening a fierce response from the Tzahal or Israel Defense Forces.
Both crude benchmarks additionally hit their lowest ranges since July at one level on international demand considerations. However, OPEC believes such considerations have been blown out of proportion. Updating the market with its newest projections, the producers’ group stated oil market fundamentals stay sturdy. It additionally saved its world oil demand progress forecast for 2024 unchanged at 2.25 million bpd.
For 2023, OPEC revised international demand progress projections marginally upward by 20,000 bpd to 2.5 million bpd. It counseled the power of the U.S. financial system, flagged forecasts about rising Indian crude oil imports and dismissed market pessimism over financial exercise in China.
“The latest data shows Chinese crude imports increasing to 11.4 million bpd in October, and remaining on track to reach a new annual record high for this year, at around the same level. In fact, the Chinese crude imports remained very healthy, at a record level that is well above the five-years average range…with year-on-year crude imports at 1.2 million bpd higher,” it stated.
Echoing latest feedback from Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman, OPEC additionally famous: “Despite favorable market fundamentals, oil prices have fallen in recent weeks, owing primarily to financial sector speculators.”
Are speculators actually accountable?
This is a well-known line that OPEC has used earlier than when the market would not fairly go the way in which it desires it to. As at all times, the explanations are someplace within the modest center. Speculators want a foundation for speculating. Right now those that are web brief, i.e. betting on the oil worth falling, and alluring OPEC’s ire are those inserting extra emphasis on what’s going to doubtless weigh on oil costs.
As OPEC places it: “Potential downside risk to current robust global economic growth forecasts, although minor, may include sustained restrictive monetary policies to fight inflation, and geopolitical developments.”
Many, particularly cash managers, do not deem these dangers to be as minor as OPEC. On the demand aspect, I agree with OPEC’s evaluation of rising U.S. consumption with the Northern Hemisphere’s winter approaching, in addition to increased seasonal demand with the Thanksgiving and Christmas breaks to observe. Ditto applies to the group’s evaluation of India’s rising imports.
How a lot of that demand is being, or might be, serviced by OPEC is after all questionable, particularly within the case of India with its new discovered urge for food for comparatively cheaper Russian crude. However, considerations over China’s financial exercise will not be unfounded even when nobody is predicting an financial disaster.
Its property and building market is in a state of upheaval and there may be excessive youth unemployment. OPEC loudly flags the IMF’s upward revision of China’s progress prospects to five.4% (from 5%) for 2023.
But the IMF additionally warns of slower progress subsequent yr, projecting that China’s GDP will broaden by 4.6% in 2024 primarily attributable to a weak “property sector” and subdued exports. This is not the type of projection to fill anybody with confidence.
Meanwhile, actual wages, i.e. earnings adjusted for inflation, in Japan – the world’s fourth-largest crude oil importer – fell for the 18th consecutive month in September, dropping by 2.4% from a yr earlier.
And fears of a recession in Europe haven’t subsided in any respect. In truth, lackluster financial exercise within the continent’s largest financial system – Germany – is ringing alarm bells. Concurrently, the European Central Bank, Bank of England and Swiss Central Bank are all sustaining a excessive rate of interest local weather in line with the U.S. Federal Reserve.
Sum all of it up, and the oil market isn’t in for a simple trip over the near-term. That’s exactly why geopolitical strife within the Middle East and manufacturing cuts have didn’t help costs. So damaging oil market sentiment is neither overblown nor nonexistent however someplace within the modest center – fairly like present crude worth ranges.