One of the remarkable features of this year’s oil price rally is that it has occurred with an almost complete absence of market bulls, analysts at Standard Chartered said in a report sent to Rigzone late Tuesday.
“We were very surprised to note that our Q2 Brent forecast of $94 per barrel is currently the only forecast above $90 per barrel among the panel of 34 institutions used in the computation of the Bloomberg consensus,” the analysts noted in the report.
“Both the median and the mean of the Q2 Bloomberg consensus panel currently stand at $83 per barrel, which is roughly where they have been since the start of the year,” they added.
“Of the 34 forecasts used in Bloomberg’s Q2 panel, only eight are above $85 per barrel and only two are higher than the price at time of writing. Even those institutions that tend to be associated in media coverage with a more positive view of oil have relatively low Q2 price forecasts,” they continued.
“We could perhaps understand the dominance of bearish price views if fundamentals were looking weak, if inventories were high and rising, if OPEC policy appeared uncertain or if geopolitics appeared benign. However, we do not think any of those conditions hold; indeed we think the exact opposite of each statement is true,” the analysts went on to state.
In the report, the analysts said the cautious approach may yet prove to be correct but added that they still find the scarcity of market bulls somewhat puzzling.
“In particular, we think several months of tighter fundamental readings and a near $15 per barrel year to date price rally might have led to more openness among analysts to the possibility of an upside for prices; instead the consensus Q2 median forecast has remained flat,” they added.
The analysts pointed out in the report that their expectation has been that Brent crude oil prices will break above $90 per barrel in early Q2.
“Current price dynamics appear to suggest that the break could occur very early in the quarter, with Brent moving above $89 per barrel in early trading on 2 April,” the analysts said, noting that the latest push higher has been reinforced by several strong tailwinds.
“These include a significant escalation in Middle East geopolitical risk following the destruction of Iran’s consulate in Damascus, further drone attacks on Russian oil refineries, and a decision to constrict exports of Mexico’s heavy Maya crude oil in order to increase domestic gasoline output,” they stated.
“Fundamentals remain strong; we think OPEC will be able to increase output in Q3 without either causing inventories to rise or prices to weaken,” they added.
Standard Chartered projected in the report that the ICE Brent nearby future price will average $98 per barrel in Q3 and $106 per barrel in Q4.
Bullets, Bombs, and Tragedies
In another report sent to Rigzone on Tuesday, Bjarne Schieldrop, the Chief Commodities Analyst at Skandinaviska Enskilda Banken AB (SEB), said “bullets, bombs, and tragedies catch.. the headlines but for oil they have so far been catalysts for higher prices rather than the real reasons for crude oil price gains”.
“Headlines these days are naturally and frequently filled with the tragedy playing out in Gaza with spillover effects in Lebanon, Syria, Yemen and elsewhere in the Middle East,” Schieldrop noted in the report.
“Not a single drop of oil due to these events has however been lost … except for some re-routing of oil around Africa rather than through the Suez Canal,” he added.
“‘Additional risk premium’ has frequently been quoted as the explaining factor to the price gains we have seen both recently and since oil prices bottomed out in early December 2023,” he continued.
“There is always a risk for an engulfing regional war in the Middle East with large losses of supply of oil due to this. But we don’t think there is much of a risk premium in the oil price due to such risks. Not today and not over the past six months,” Schieldrop went on to state.
In the report, the Chief Commodities Analyst said “bullets, bombs, and tragedy in the Middle East have been more like catalysts releasing the oil price to the upside on the back of a tight market with falling inventories rather than the real reason for the higher prices”.
“The Ukrainian drone attacks which drove some 800,000 barrels per day of Russian refineries offline in mid-March did indeed affect the oil complex directly, but it didn’t halt any supply of crude oil,” he added.
“Global refinery runs will likely average close to 84 million barrels per day in 2024. If we assume that the affected Russian refineries will stay offline for two months then a mere 0.2 percent of global refining has been affected,” he continued.
“Refining margins have naturally hardly moved at all due to the events with the Russian refineries. So, while the events with Russian refineries helped to drive crude oil prices higher it was more of a catalyst than a fundamental factor,” he said.
Schieldrop noted in the report that a tight market and rising macro-optimism is driving crude oil prices higher.
“What is driving the oil price higher … is a tight market as a result of muted U.S. shale oil production growth, a steadfast OPEC+ holding Q1-24 cuts also in Q2-24, together with sufficiently strong oil demand growth,” he said.
“All leading to falling inventories and rising crude oil prices. The global oil market is not running a massive deficit, but it is running a deficit week after week,” he added.
“Add rising optimism for the global economy with U.S. manufacturing PMI for March ydy showing a reading of 50.3 and China March PMI reaching 50.8,” he continued.
Schieldrop revealed in a report sent to Rigzone on March 27 that SEB's forecast for Brent crude is $85 per barrel this year.
“This means that we'll likely see both $90 per barrel and maybe also $100 per barrel sometimes during the year,” he said in that report.
BofA Ups Forecast, BMI Holds
In a report sent to Rigzone on Wednesday, BofA Global Research revealed that it had upped its 2024 Brent oil price forecast.
“Low oil stocks, OPEC+ output cuts, geopolitical tensions, and robust economic growth have flipped petroleum price trends,” the BofA Global Research report stated.
“We now estimate that improving demand has helped push global oil markets into a deficit in 2Q24 and 3Q24 of roughly 450,000 barrels per day,” it added.
“Thus, we increase 2024 Brent and WTI crude forecasts to $86 and $81 per barrel and see prices peaking at around $95 per barrel this summer,” it continued.
BMI, a Fitch Solutions company, revealed in a report sent to Rigzone recently that it sees Brent averaging $85 per barrel in 2024.
“We are holding to our current forecast for Brent crude to average $85 per barrel in 2024, whilst downwardly revising our forecast for 2025, from $84 per barrel to $82 per barrel,” BMI analysts noted in the company’s latest report.
“Brent has performed well this month, breaking through near-term resistance to settle at a high of nearly $87 per barrel on March 25,” they added.
“Risk premia associated with the Russia-Ukraine war have resurfaced, with Kyiv ramping up its attacks on Russian energy infrastructure. This, combined with the ongoing supply risks in the Middle East and cutbacks by OPEC+, has fueled healthy price gains,” they continued.
To contact the author, email andreas.exarheas@rigzone.com
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