Highlights
Dated Brent above $90/b
Inventories of refined products on the water “quite high”
Russia may want gasoline prices to rise
Investors in financial markets are convinced that crude oil is a “buy” now that $100 a barrel is on the horizon, Mike Muller, head of Vitol Asia, said in a podcast on April 7.
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“Fundamental physical changes in oil markets have taken a back seat to money flows and financial markets have become convinced that this is a buy,” Muller told Gulf Intelligence's daily energy markets podcast.
Platts, part of S&P Global Commodity Insights, valued Dated Brent at $90.86/b on April 5, the highest since October 23. While that could prompt some traders to sell off with prices in a new trading range of around $90/b, OPEC+ and Saudi Arabia will be increasingly tempted to take advantage of spare capacity if prices continue to rise, Müller said. While crude oil inventories have declined, on-water supplies of refined products are still “pretty high,” he said.
Donald Trump
The upcoming US presidential elections in November could also have an impact on oil policy.
“We should never forget that it is within the power of Russia and Saudi Arabia not only to ease the market but also to raise U.S. gasoline prices before the election,” said Christof Ruhl, senior research scientist at the Center on Global Energy Policy Columbia University the Podcast. “Well, I'm not a conspiracy theorist at all, but in this case I think that at least Russia's desire to see Donald Trump win the election must be an overwhelming incentive.”
Financial participants in oil markets have concluded in recent weeks that crude oil and commodities in general correlate very well with inflation after being on the sidelines for much of the last 12 months, Muller said. And historically, their position is still relatively low, he said.
“We have a market that's not necessarily tight in the short term, but given most people's forecasts for later in the year, most people, most advisors, most experts, most advisors are calling for stock draws later in the year, and this is a solid one Basis.” to the basic picture,” said Müller. “At the same time, OPEC and Saudi Arabia in particular have the opportunity to change this picture by gradually allowing quantities from their free capacities back into the market should the markets become even stronger and that wouldn’t be to their liking.”
On the positive side, Muller said India's economy was growing faster than expected, China was taking steps to boost economic growth, global industrial production was positive, while Kurdish oil flows from northern Iraq had not yet returned and supplies to Sudan were disrupted by the war And at one point, about 1 million barrels per day of Russian products were out because Ukraine had repeatedly attacked Russian refineries. Some of Russia's crude shipments have offset product shipments to the point where it is possible that Russia's crude exports through Baltic Sea ports have reached capacity, he said.
Don't fail
Vitol forecasts demand for refined oil products in the second half of 2024 will be “much, much” higher than in 2023, perhaps even 2 million barrels per day, Muller said. Global oil demand is also expected to rise by 1.7 million to 1.8 million barrels per day this year, he said. “We are by no means approaching peak oil production here,” he said. “We have one of the fastest annual growth rates we have ever seen in the last 20 years of our history.”
While Muller said he has always been amazed at the refining industry's ability to get back on its feet, Ruhl said Russia will have “great difficulty” repairing its refineries because of the sanctions. “They won’t be replaced for another week or so,” he said.
Ukraine's ability to continue attacking Russian refineries could become a “game changer” as refining margins could rise, gasoline prices would rise and this could lead to more inflation, Ruhl said.
If prices rise, OPEC+ and Saudi Arabia will likely start selling more oil, Muller said. “The expectation is that there will be some pragmatism as $90/b becomes $100/b Brent and some more oil comes into the market. That seems to be on people’s minds.”
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