Industry Analysis See Brent Crude Holding Up At $96 Per Barrel During 4th Quarter

In a new report sent to industry commentator Rigzone on Wednesday 27th September, analysts at BofA Global Research revealed that they now project that Brent crude oil will average $96 per barrel in the fourth quarter of this year.

“The recent run up in refining margins is helping push Brent crude oil prices higher, together with deep production cuts from Saudi and Russia,” the analysts noted in the report.

“With OPEC+ committed to curbing oil supply into year-end and China stimulus poised to expand into 4Q23, we expect global oil stocks to decline by 70 million over the coming three months. As such, we now see Brent averaging $91 per barrel in 2H23, up from $81 per barrel prior,” they added.

The BofA Global Research analysts highlighted in the report, however, that they are still keeping their $90 per barrel forecast for 2024 “as non-OPEC oil supply expands by 1.2 million barrels per day, driven by Guyana, Canada, U.S. shale, and Brazil”.

“Also, if Venezuela and Iran sanctions were to ease further, that could add 450,000 barrels per day to supply in 2024,” the analysts added in the report.

“Incremental volumes could help cap a further rise in oil prices, should OPEC+ politics and global geopolitics allow. Plus, positioning measured by CFTC data or our own CTA models suggests speculators are quite long oil already,” the analysts continued.

In the report, the analysts stated that, for now, Russia and Saudi Arabia have shown a strong alignment in providing support to the oil market between $80 and $100 per barrel Brent.

“Yet the political calculus could start to change above $100 per barrel,” they warned.

“With the U.S. presidential election approaching, internal OPEC+ dynamics could make a big difference to the oil price outcome next year,” the analysts stated in the report.

“On the one hand, another spike in energy prices risks reigniting inflation fears around the world, higher interest rates, and eventually financial turmoil. On the other, the downside to oil prices may be limited,” they continued.

“In contrast to the lone historical ‘Saudi put’ in the oil market, we believe Brent now benefits from three ‘puts’ going forward at $70-75 per barrel - the traditional OPEC+ cuts (now joined by Russia), a big increase in China coal production costs (pricier global energy), and the likely refill of the U.S. Strategic Petroleum Reserve,” the analysts went on to state.

The BofA Global Research analysts noted in the report that global oil demand growth may slow to 1.1 million barrels per day next year from two million barrels per day this year, “with Asia leading as OECD shrinks”.

“High interest rates will likely choke global GDP, while OPEC+ spare capacity could help cap a spike in oil prices, if politics allow,” the analysts added.

“Transportation should continue to lead oil demand going forward. We expect jet fuel, gasoline, and diesel to account for the bulk of the growth and believe demand for industrial fuels will remain weak,” they continued.

However, geopolitics could remain a real challenge, the analysts said in the report.

“Russia may try to maximize oil price over volume, creating major upside risks to oil prices in 2024,” they added.

“Counterbalancing these upside risks, oil production correlations show ‘OPEC+ cohesion’ has collapsed to near zero following the highest compliance rates in decades during the pandemic, a risk that could hurt the group next year,” the analysts went on to state.

Oil Prices Held Up Relatively Well

In a separate report sent to Rigzone late Tuesday, analysts at Standard Chartered said oil prices “have held up relatively well in the wake of the negative reaction across risk assets to the latest FOMC meeting”.

“We think there would have been a far greater fall had the macro-dominated sentiment of H1 persisted,” the analysts said in the report.

“A sustained fundamental tightening has offset concerns about a higher-for-longer rates cycle, with the additional consideration that the Fed’s policy is likely to cause OPEC producers to be more cautious for longer,” they added.

“The still-slow pace of upside moves owing to macro fears has meant a sustained fall in volatility since June. Realized annualized 30-trading-day Brent volatility reached a 26-month low of 15.2 percent at settlement on 25 September, having been above 37 percent in early June,” the analysts continued.

The Standard Chartered analysts warned in the report, however, that they doubt that the downdraft in volatility can be sustained.

“We expect a further 1.3 million barrels per day fall in global inventories in Q4, following 2.1 million barrels per day of draws in Q3,” they said.

“Lower inventories have already fed through into tighter spreads and usually also eventually feed through into higher volatility. Greater uncertainty over central bank and USD outlooks is also often a source of volatility, as are extremes in speculative involvement,” they added.

“While slow to join the rally, speculative funds have moved to the long side of oil; our crude oil money-manager positioning index is at a 44-month high of +16.7,” they continued.

In the report, the Standard Chartered analysts said they think a burst of higher volatility is likely.

Standard Chartered’s report showed that the company sees ICE Brent averaging $93 per barrel in the fourth quarter of this year, $91 per barrel overall in 2023, and $98 per barrel overall in 2024.

At the time of writing, the price of Brent crude oil is trading at $97.23 per barrel. Brent has rallied from a close of $72.26 per barrel on June 27.

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