In a report sent to Rigzone on Wednesday by the Standard Chartered team, Standard Chartered Bank analysts said they expect OPEC+ “to continue focusing on compliance”.
The analysts highlighted in the report that “the OPEC+ nine is scheduled to meet virtually” this Sunday, adding that “the unwinding of the November 2023 tranche of voluntary output cuts will be complete with September loadings”.
“Attention will then focus on the April 2023 tranche, which totals 1.66 million barrels per day,” the analysts noted. They went on to state in the report that “there is no pressing requirement to address the unwinding of this tranche yet”, adding that they “expect members to do so only if balances and forward curves appear supportive of adding further barrels to the market”.
“Instead, we expect the communication to focus on compliance,” they continued.
The Standard Chartered Bank analysts stated in the report that the market “shrugged off the higher than expected rises delivered by the OPEC+ eight earlier this year” but warned that “any headlines on the potential return of the April 2023 tranche of barrels are likely to cause short-term softness”.
“However, we believe the number of actual returning barrels will be significantly less than any nominal value, given capacity constraints and over-production compensation schedules, and will in fact start to expose the impending tightness in spare capacity,” the analysts added.
In a report sent to Rigzone on Thursday, Aaron Hill, Chief Strategist of FP Markets, said “oil markets … took a sizeable hit on Wednesday, down more than 2.0 percent amid concerns that OPEC+ could boost supply again, raising concerns about a potential supply glut”.
In a market analysis sent to Rigzone on the same day, Ahmad Assiri, Research Strategist at Pepperstone, said “oil sold off, WTI down 2.6 percent and Brent -2.4 percent, on headlines that OPEC+ intends to continue raising output at the upcoming meeting”.
“While insiders emphasized no final decision yet to be made, the signal was enough to deflate prices in a market prone to overreaction,” Assiri added.
Rigzone has contacted OPEC for comment on the Standard Chartered report, and Hill and Assiri’s statements. At the time of writing, OPEC has not responded to Rigzone.
Tight Trading Range
Standard Chartered Bank analysts noted in the report sent to Rigzone by Standard Chartered on Wednesday that “Brent’s tight trading range … continued for another week, from an intra-day high of $68.73 per barrel on 26 August to a low of $66.91 per barrel on 27 August, and a settlement of $68.15 per barrel on 1 September”.
“30-day annualized Brent volatility has remained around 25 percent since the start of August, but we expect a seasonal uptick as summer trading moves into September,” they added.
The analysts revealed in the report that their machine learning model SCORPIO “remains resolute in its focus on a $67 per barrel handle for front-month Brent crude, forecasting an 8 September settlement of $67.72 per barrel, which would be a week on week decrease of $0.43 per barrel”.
“The model sees little in its drivers to suggest that prices should move to a new equilibrium yet,” the analysts said.
They went on to state in the report that money manager positioning has improved for Brent crude.
“Our Standard Chartered Money Manager Positioning Index for the main Brent contracts rose by 10.4 week on week to 10.4,” they noted.
“However, positioning in WTI remains at -100 for the third consecutive week, and is at its most negative since March 2009, when prices slid to a post-GFC low around $40 per barrel,” they added.
“Our combined crude index for the four main contracts rose by 6.7 week on week to -52.7,” the analysts went on to state.
Price Projections
Standard Chartered projected in its report that the ICE Brent nearby future crude oil price will average $65 per barrel in the fourth quarter and $61 per barrel overall in 2025. The company forecast in the report that the NYMEX WTI basis nearby future crude oil price will come in at $62 per barrel in the fourth quarter and $58 per barrel overall in 2025.
A BMI report sent to Rigzone by the Fitch Group on August 29 showed that BMI expects the front month Brent crude price to average $68 per barrel this year. BMI forecast in that report that the WTI crude price will average $65 per barrel in 2025.
In its latest short term energy outlook (STEO), which was released on August 12, the U.S. Energy Information Administration (EIA) projected that the Brent spot price will average $58.05 per barrel in the fourth quarter and $67.22 per barrel overall this year. The EIA projected in that STEO that the WTI spot price will average $54.05 per barrel in the fourth quarter and $63.58 per barrel overall in 2025.
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