Oil has had a difficult year due to concerns about China’s downturn, production curbs by Opec+, and the effects of the Federal Reserve’s tightening policy. Many traders were caught off guard by the tensions as prices dropped before rising. What happens next is currently up for discussion in Singapore.
The S&P Global Commodity Insights-organized Asia-Pacific Petroleum Conference will take place in the Southeast Asian city-state this year, with participants from producers, hedge funds, analysts, and traders. The biggest industry meeting in the area, which begins on Monday (Sep. 4), is a regular event on the calendar and provides both a useful litmus test of the market’s current mood and hints on the forecast.
Heavy hitters, including Vitol Group CEO Russell Hardy, Black Gold Investors President Gary Ross, and Trafigura Group Co-Head of Oil Trading Ben Luckock, are set to speak. Even though they’ll have the audience’s attention during the day, guests prefer the after-hours excitement, which is typically reserved for invite-only cocktail parties and chic gatherings held at establishments built during the colonial era, such as hotels, clubs, rooftop bars, and even a golf course.
Due to the gyrations of crude over 2023, global benchmark Brent fell to a little over US$70 per barrel in June, its lowest level since 2021. That downturn, which surprised excessively enthusiastic institutions like Goldman Sachs Group, was partially caused by the fact that flows from Russia held up better than anticipated despite the sanctions and price cap put in place after the invasion of Ukraine. After supply was restrained under Saudi Arabia’s leadership, the market recovered, and Brent is presently close to US$89.
Founder of Vanda Insights and conference speaker Vandana Hari remarked, “I find it amusing that the Opec+ cuts, which initially appeared to be an attempt to protect a US$70 floor for Brent, are now trying to keep prices much above US$80. What long-term strategy does the alliance have? A goal of $80 to $90 US?
There may be other cuts in the works. Russia announced last week that it had reached an agreement with its Opec+ allies on additional export cuts and would provide more information soon. Meanwhile, a Bloomberg survey indicates that Saudi Arabia is likely to prolong its one million barrel cut into October.
Warren Patterson, head of commodities strategy for ING Groep, predicted that Saudi Arabia will begin to unravel the additional 1-million barrel-per-day supply cut at some point and that the output will resume in the fourth quarter. Fundamentally, the return of these barrels may be easily absorbed by the market.
According to the International Energy Agency’s most recent snapshot, which reflects this view, global oil demand is at an all-time high due to strong consumption, a development that could push up prices. For the first time in June, global use averaged 103 million barrels per day, and it may increase more, it warned.
There are undoubtedly many indications that the world market has been getting tighter. US commercial inventories are one of them; since their peak in mid-March, they have decreased by about 60 million barrels, and their current stockpile is the lowest it has been since late 2022. In other markets, both Brent and West Texas Intermediate futures have been trading in a bullish pattern known as sustained backwardation.
Demand, particularly the forecast in China, the world’s largest importer, continues to raise concerns. Despite the fact that year-to-date crude inflows are far higher than last year’s pace, much has been accumulated in stockpiles, and some of the processed fuels have been exported due to local weakness. The nation has reported months of subpar economic data as its post-Covid recovery sputters, underscoring the difficulties.
Chinese inflows may be higher, but Vishnu Varathan, Asia head of economics and strategy at Mizuho Bank, explained that this “reflects the ‘catch-up’ in stockpiling as the economy adjusts back to normalized travel. It is too soon to say that the recent increase in import quantities is a sign of industrial optimism. BLOOMBERG