Brent stabilizes around $90/b, pending the evolution of the conflict in the Middle East.
Weekly analysis of the oil market
After the sharp rise in oil prices over the past two weeks following Hamas' attack on Israel, crude oil prices fell last week to stabilize at around $90/bbl over the weekend. Crude oil prices now fully incorporate a geopolitical premium of $6-7/bbl and, in the absence of further developments in the conflict, are expected to continue to hover around $90/bbl. The announcement this weekend by the Israeli army "of the beginning of the second phase" of the war with the intensification of air strikes and ground operations in Gaza suggests however that the risk of igniting the conflict in the region via Iran, main support Hamas' material remains possible even if for the moment this scenario does not seem the one that the oil markets envisage. Indeed, in future markets, hedge fund managers have begun to reduce their net bullish crude oil (Brent and WTI) of 13,185 net positions combined to 390,791, based on weekly futures and options data from ICE Futures Europe and CFTC. Bullish bets on WTI crude oil have even come down to their lowest levels in eight weeks.
On average weekly, Brent crude oil prices in futures markets fell by $1.8/bbl to $89.3/bbl, and WTI lost $3.3/bbl to $84.7/bbl. Economists surveyed by Bloomberg as of October 25 have revised up their crude oil price forecast for this quarter to $90/bbl (+$1.0/bbl).
IMF: Global recovery still weak and disparities between regions growing.
The global economy continues to send mixed signals, with the weakness of the eurozone contrasting with the vigour of the United States. In its latest economic outlook report, the IMF notes that global economic activity remains below its pre-pandemic trajectory. Several factors are holding back the recovery. Some reflect long-term consequences of the pandemic, such as the war in Ukraine. Others are more cyclical in nature, including the effects of the tightening of monetary policies needed to curb inflation, and the reduction of tax incentives faced with the increase in the public debt of States. The IMF now forecasts global growth of 3% for 2023 (from 3.5% in 2022) and 2.9% for 2024. These projections remain below the historical average (2000-19) of 3.8%, and forecasts for 2024 are down 0.1 percentage point from last July’s estimates. For advanced economies, growth is expected to fall to 1.5% in 2023 and 1.4% in 2024 (from 2.6% in 2022), as the US economy bounces off weaker-than-expected growth in the eurozone. For emerging markets and developing economies, growth is expected to decline slightly from 4.1% in 2022 to 4.0% in 2023 and 2024. In China, post-COVID growth momentum, which is expected to bring growth to 5.0% this year, is expected to slow to 4% in 2024 as the economy faces increasing headwinds due mainly to the housing crisis.
Global inflation is projected to decline gradually from 8.7% in 2022 to 6.9% in 2023 and 5.8% in 2024. The forecasts for 2023 and 2024 have been revised upwards by 0.1 percentage point and 0.6 percentage point respectively, compared to last July’s forecasts. For the IMF,
USA: Another mega merger acquisition in the oil sector
According to the weekly EIA report, US commercial crude oil stocks increased by +1.4 mb during the week to October 20 (compared to -0.5 mb for consensus and +1.2 mb on average over 5 years. Despite this increase, stocks remain at their lowest level in 5 years. The increase was supported by crude oil exports, which decreased by 0.5 mb/d, and refineries, which reduced their processing by 0.2 mb/d to return now in the 5-year average. In addition, domestic crude oil production remained stable at a record 13.2 MMb/d, with the number of platforms in operation increasing by 2. In terms of product, gasoline inventories slightly increased (+0.2 Mb vs -1.3 Mb consensus), reflecting lower demand (-1%) and smaller exports. Distillate stocks fell sharply (-1.7 mb vs -1.8 mb consensus) due to an increase in net exports.
After the acquisition of Pionner by Exxon for 60 billion dollars, Chevron announced last Monday the acquisition of the Hess oil company for $53 billion. While Exxon’s target was clearly oriented towards shale the acquisition of Hess diversifies Chevron’s portfolio with assets in Bakken and especially Guyana (where production is expected to increase 1.5-fold next year to nearly 0.6 MMb/d, according to the IEA). Most these record acquisitions are driven by the search for new oil and gas reserves to support growth long-term returns for shareholders. However, they also reflect the difficulty for these American oil giants to increase their own production, given the decline of In 10 years, Exxon’s production has fallen by nearly 12%, from 4.2 MMb/d in 2012 at 3.7 Mb/d in 2023, its lowest level since the merger with Mobil. Against this backdrop, both companies closed down sharply this week with the release of their quarterly results. In the third quarter of 2023, the US oil majors' profits fell sharply year-on-year (-54% for Exxon, -42% for Chevron), 2022 was an exceptional year with crude oil prices soaring to nearly $140/bbl. However, this year’s results are up from 3T2021. Note the excellent results of TotalEnergie, with a record quarterly result of $6.7 billion, up +1% year-on-year.
Europe: lower prices for petroleum products on the Rotterdam market
In Europe, on the Rotterdam market, stocks of petroleum products increased very slightly last week, with higher stocks of gasoline and naphtha offsetting lower stocks of diesel. Commodity prices followed the decline in the price of crude oil with a decline of 0.6% for gasoline and 2.3% for diesel. European refining margin (Brent FCC) drops from $0.2/bbl to $5.5/bbl but remains nearly 11% above average over the last five years ($5/bbl).