Oil markets rebounded during Wednesday’s session, recovering from early-week losses, following a notable decrease in inventories across various fuels reported by the Energy Information Administration (EIA). The EIA disclosed a modest crude build of 1.4 million barrels for the week ending March 1, a significant drop from the previous week’s build of 4.2 million barrels. In contrast, the American Petroleum Institute reported an even smaller crude build at 423,000 barrels.
The EIA further revealed substantial inventory draws, including 4.5 million barrels of gasoline and 4.1 million barrels of middle distillates in the final week of February. These figures marked a considerable increase compared to the prior week’s draws of 2.8 million barrels of gasoline and 0.5 million barrels of middle distillates.
The early-week dip in oil prices was attributed to OPEC+’s decision to extend voluntary production cuts through Q2, raising concerns about potential demand weakness. Russia also agreed to an additional 471,000 bbl/day voluntary production and export cut in Q2, on top of the 500,000 bbl/day voluntary reduction from the previous year extended to year-end 2024.
Commodity analysts at Standard Chartered expressed a bullish outlook, asserting that the extensions would further tighten the market, especially after Q1’s counter-seasonal inventory draw. They estimate a global inventory draw of 0.9 million barrels per day (mb/d) in Q2 following a 1.1 mb/d draw in Q1, with a total draw of 185 million barrels in H1-2024. Monthly projections indicate a surplus of 180 kb/d in April followed by deficits of 1.45 mb/d in May and 1.46 mb/d in June.
Despite the lag in the oil market‘s response to OPEC and OPEC+ decisions, Standard Chartered anticipates limited downside for oil prices due to market tightening. The analysts highlighted Russia’s transparent approach by shifting to wholly output-based cuts, dispelling earlier doubts about the authenticity of its claims.
However, near-term downward pressure on oil prices is expected. Standard Chartered noted that the latest EIA data is bearish for the third consecutive week according to its proprietary U.S. oil data bull-bear index. Gasoline inventories fell, but the deficit against the five-year average narrowed, and a similar trend was observed with middle distillates. Implied gasoline demand increased weekly, but the February average fell by 4.4% year-on-year.
StanChart’s machine-learning oil price model, SCORPIO, predicts a small week-on-week fall of USD 0.9/bbl for the May contract of Brent prices, ending on March 11. Conversely, FXPro’s Alex Kuptsikevich is more optimistic, suggesting that the extension cut could propel oil prices above recent resistance levels, particularly if WTI consolidates above $79/bbl, indicating a break of long-term horizontal resistance.