Brent at nearly $83/bbl supported by geopolitical tensions and low signs of improvement in the economy in the euro zone.
Weekly analysis of the oil market
The price of Brent was up slightly last week, still supported by geopolitical tensions in
Middle East, and encouraging macroeconomic indicators showing signs of improvement in
Europe zone. On a weekly average, the price of Brent ICE (one-month London futures contract) increased by $0.3/bbl (+0.4%) to $82.8/bbl, while WTI remained stable at $77.8/bbl. The consensus of economists surveyed by Bloomberg on February 23 is stable compared to last week, with a price of Brent for the first quarter at $82.5/bbl and $82.8/bbl for the second quarter.
Eurozone PMI indices: contraction in industry, but improvement in services activity.
The Eurozone Composite PMI for February came in slightly above consensus forecasts, at 48.9 compared to 47.9 in January. However, it remains in contraction territory. The rise in the composite PMI index is entirely due to the increase in the services PMI (from 48.4 to 50.0), as the manufacturing PMI fell (from 46.6 to 46.1). The decrease in the European manufacturing PMI is explained by a further reduction in orders to exports and by a more marked contraction in employment, but above all by the fall in the German PMI, the index passing from 45.5 in January to 42.3. On the other hand. S&P Global's Eurozone report offers little reassurance on pricing, however, with inflation in selling prices and growth in average input costs for producers of goods and providers of services continuing to increase. In the United States, growth in private sector activity slowed in February, with an estimate of the index Composite PMI at 51.4, after reaching 52 the previous month.
Russia's oil revenues: The difficult assessment of economic sanctions
As the Russia-Ukrainian conflict will enter into its third year, and that a new set of economic sanctions (the 13th) was adopted last week by the G7, the impact of these sanctions on Russia's oil revenues is still difficult to estimate.
According to the KSE Institute, sanctions on Russian oil have already cost the country $113 billion in export revenues since the start of the conflict, with an additional loss estimated at $55 billion in gas export revenues due to Europe's diversification away from Russian gas.
For the IEA, which is based on flows from Kpler and price data from Argus, average oil export revenues in 2023 were $175 billion ($14.6 billion/month), compared to $228 billion. $ ($19 billion/month) in 2022, a drop of more than $53 billion (around 2% of Russia's estimated GDP). Nevertheless, Russia's oil export revenues appear to be on the rise again in 2024 with revenue estimated at $15.6 billion in January for an export of 7.7 Mb/d of oil and petroleum products.
On average over the last three months, the price of Russian crude was sold at a discount of $13.4/bbl compared to Brent (according to Argus), but has always remained above the $60/bbl mark set by the G7 countries, demonstrating the difficulty of enforcing this ceiling despite the pressure exerted by the United States on some shipping companies. On the other hand, according to data from Argus, the price seiling for petroleum products was generally respected in recent months, with the exception of naphtha, the sale price of which was slightly higher.
The lack of transparency and the difficulty of obtaining precise data on oil flows and real prices of sale (Argus prices are obtained by consultation with a few players) make it difficult to estimate the impact of the G7 measurements. To avoid this lack of transparency, the United States, the European Union and the United Kingdom introduced tougher rules this month aimed at supporting the implementation of caps on price and prevent its circumvention by reducing the opportunities for bad actors to use opaque transport to conceal the purchase of oil beyond the ceiling. In particular, operators will have to provide detailed certificates for each transport (previously declarations on an annual basis were accepted).
USA: Further increase in crude stocks and low level of use of American refineries.
In the United States, commercial crude stocks increased by 3.5 Mb last week (vs. +3.8 Mb consensus/+1.8 Mb average over 5 years), for the fourth consecutive week. They are currently less than 1% of the average five-yearly. This increase was supported by crude oil production which returned to its record level of 13.3 Mb/d. American refinery activity is starting to recover, with a utilization rate of 80.6%, but still well below the levels seen at this time of year over the past five years (86.3%) due to outages for maintenance and repairs. With regard to petroleum products, stocks of gasoline are down very slightly (-0.3 Mb), while stocks of distillates have decreased by more than 4 Mb due to of an increase in demand. Distillate stocks are on average 9% lower than the five-year average.
Europe: Tensions on diesel are reducing. Decline in refining margins
In Europe, stocks of refined products in the ARA zone increased by 0.5% to 5.7 Mt last week. The Gasoline stocks fell 3.4%, but remain more than 3% below the average of the last five years. The Diesel stocks decrease again (-1.2%) and remain more than 15% below the average of the last five years. On the Rotterdam international market, gasoline prices fell by 0.1% and diesel prices by 3.7%, the pressure on this market starting to ease with crack diesel down 9.3% per week last. In this context, the European refining margin fell by 17% to $10.6/bbl.