S&P Global expects Brent crude prices to drop to $55 per barrel by the end of the year as a result of supply growth resulting from OPEC+’s decision to reverse cuts agreed in 2022.
Speaking at the Asia Pacific Petroleum Conference in Singapore, Dave Ernsberger, co-president of S&P Global Commodity Insights, said that “If there’s a massive surplus, if Russian oil continues to flow into the market, if stock-building stops and some of this stuff goes into commercial inventory, contangos blow out, we can see a lower price than that.”
Brent crude is currently trading above $66 per barrel, at $66.28 at the time of writing. West Texas Intermediate was changing hands for $62.57 per barrel. This means that S&P Global is projecting an immediate downward risk of over $10 per barrel—based on several ifs.
Russian oil looks set to continue flowing into the market, although threats of new U.S. sanctions have had traders worried about a disruption, which helped push Brent crude and WTI higher today. This suggests the danger of a “massive surplus” is a rather hypothetical one at this point in time.
Further, stocks, at least in the Organization for Cooperation and Development, remain subdued, significantly below the five-year average, with only minor gains since the start of the year. According to Oxford Energy, OECD crude oil inventories have only gone up by 4 million barrels since the start of the year.
China has been building its own inventories a lot more actively, based on import and refinery processing rate data regularly reported by Reuters. This has become an argument in favor of more bearish forecasts—if China is storing the crude it buys instead of using it immediately, demand must be weak, that argument goes.
Yet the market remains sensitive to any supply disruption despite all the bearish forecasts of an oversupply. This suggests the balance between supply and demand is more precarious than those forecasts assume.
By Irina Slav for Oilprice.com
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