Oil has the potential to reach $95 per barrel but a large correction looms in the second half of the year and 2025, Macquarie strategists outlined in an oil and gas report sent to Rigzone late Wednesday.
“We anticipate price to remain supported through 2Q on geopolitical tension and fundamentals,” the strategists noted in the report.
“However, we think it will be difficult to maintain Brent above $90 into 2H24 without actual supply disruption associated with geopolitical events,” they added.
“As a result, we expect oil to turn bearish as the year progresses due to NOPEC (non-OPEC) supply growth, a material amount of OPEC+ spare capacity reentering the market, and the potential that continuing inflation softens demand,” they continued.
In the report, the strategists highlighted that, last week, crude reached a five-month-high “following the attack on the Iranian consulate in Syria as the market speculated on Iran’s response and the possibility of regional escalation”.
“In addition, structure firmed alongside flat price as the prompt spread reached its steepest backwardation since September 2023,” they added.
The strategists noted in the report that both WTI and Brent speculative net length rose over the previous week, pointing out that WTI net length improved by 5.4K while Brent increased by 13.1K.
“For the week ending in 4/2, WTI + Brent Managed Money net length reverted and increased by 20.4K contracts following the previous week’s decrease of 12.3K,” the strategists added in the report.
“WTI spec net length saw a small increase driven by almost four times new long interest than added shorts. Brent demonstrated a larger move with new length exceeding the amount of short covering,” they added.
“Lastly, commercial participants exhibited opposing flows with WTI increasing by 19.5K as Brent decreased by 0.4K,” they continued.
In a report sent to Rigzone on March 26, Macquarie strategists said they expect Brent to “grind higher until $90 or until we reach June”.
“We expect prices to be supported by geopolitical tension, which has shifted back to Russia-Ukraine, as well as a healthy debate on global balances, once again led by a wide variance on year on year U.S. production growth,” the strategists added in that report.
“If Brent reaches $90, we believe most of the upside will be factored into oil and the remaining unpriced fundamental factors, mostly supply growth related, will largely be bearish,” they went on to state.
The U.S. Energy Information Administration (EIA) increased its average Brent spot price forecast for 2024 and 2025 in its latest short term energy outlook (STEO). According to that STEO, the EIA now expects the commodity to average $88.55 per barrel this year and $86.98 per barrel next year. The EIA’s previous STEO projected that the Brent spot price would average $87 per barrel this year and $84.80 per barrel in 2025.
In a research note sent to Rigzone on Monday, J.P. Morgan projected that the Brent crude price will average $83 per barrel this year and $75 per barrel next year. The company forecast that the commodity will average $79 per barrel in the first quarter of 2024, $84 per barrel across the second and third quarters, $85 per barrel in the fourth quarter, $82 per barrel in the first quarter of 2025, $77 per barrel in the second quarter, $73 per barrel in the third quarter, and $69 per barrel in the fourth quarter, the note showed.
In another report sent to Rigzone this week, Bjarne Schieldrop, the Chief Commodities Analyst at Skandinaviska Enskilda Banken AB (SEB), revealed that SEB’s Brent forecast is “$85 per barrel for the average year with a high of $100 per barrel”.
“But when the oil price is nearing $100 per barrel, we expect verbal intervention from … [OPEC+] with statements like ‘... more supply in H2-24’ and that will probably dampen bullish prices,” he added in the report.
Standard Chartered projected in a separate report sent to Rigzone this week that the ICE Brent nearby future price will average $94 per barrel in the second quarter of 2024, $98 per barrel in the third quarter, $106 per barrel in the fourth quarter, $107 per barrel in the first quarter of 2025, $103 per barrel in the second quarter, and $111 per barrel in the third quarter.
To contact the author, email andreas.exarheas@rigzone.com
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