Story By Andreas Exarheas |RigZone.com| In a new report sent to Rigzone this week, analysts at Standard Chartered said they think their 2024 $98 per barrel Brent forecast is supported by supply and demand fundamentals.
“We expect global demand to grow 1.5 million barrels per day in 2024, with non-OPEC supply adding 0.88 million barrels per day led by the U.S., Canada, Guyana, and Brazil,” the analysts said in the report.
“The balance shows supply deficits in Q1 and Q2 giving way to a mild surplus in H2. OPEC’s aim of stabilizing prices in an acceptable range is likely to continue; we therefore maintain our current 2024 price forecasts and expect a further tightening of fundamentals in 2025,” they added.
According to the report, Standard Chartered sees the ICE Brent price averaging $109 per barrel in 2025 and $128 per barrel in 2026. The company projects that the commodity will average $92 per barrel in the first quarter of 2024, $94 per barrel in the second quarter of next year, $98 per barrel in the third quarter, $106 per barrel in the fourth quarter, and $107 per barrel in the first quarter of 2025, the report showed.
In the report, the Standard Chartered analysts noted that oil prices have been stuck in a range over the past week, “with front-month Brent trading across the entire $88-90 per barrel interval on each of the past five trading days, alternating day-by-day between settlements towards the top and the bottom of the daily range”.
“Volatility has continued to move higher, with the 30-trading day Brent realized annualized measure rising 3.8 percentage points week on week to a nine-month high of 41.0 percent,” they added.
“In late September, Brent futures volatility was in the lowest 2.5 percent of the all-time distribution but it has now moved into the highest 20 percent of that distribution,” they continued.
The analysts stated in the report that the pattern of crude oil trading over the past week strikes them as symptomatic of a market that lacks a dominant coherent narrative.
“In particular, the market appears to be struggling to process the implications of a geopolitical situation that primarily represents an increase in medium and long-term risk rather than a direct threat of short-term supply flows,” they added.
“The relative abstractness of the consequences of elevated longer-term risk seems to have led many traders (including algorithmic systems) to push to the other extreme and trade primarily on the basis of short-term headlines relating to specific events in Gaza,” the analysts said in the report.
“The result has been a relatively rare combination of heightened volatility but less coherence or consistency in the direction in fixed prices. Indeed, with many traders preferring to trade a risk event in options space rather than through fixed prices, the adoption of bullish positions through, for example, call positions has not necessarily provided any support for flat prices,” they continued.
Given the shift in trading patterns and the lack of a dominant narrative, the combination of higher risk and higher volatility with a broad tendency towards lower prices can be confusing to explain, the analysts said in the report.
“We think one consequence of this confusion is the return to prominence in the market commentary of concepts such as ‘geopolitical premium’, ‘war premium’, or just simple ‘risk premium’,” they added.
“It is an appealing concept to imagine that one could slice-and-dice prices and ascribe a particular slice to geopolitical elements. However, calculating such a premium is essentially a subjective exercise involving a comparison with either an arbitrary baseline price or against an assumed view of what prices would be,” the analysts noted.
“There is no analytical basis or statistical credibility in the resultant estimates of the size of the geopolitical slice. The use of the device of a geopolitical premium also makes market commentary rather circular, with causality often getting blurred; for example, we have often seen statements that prices have fallen (risen) because the risk premium has fallen (risen),” they continued.
The analysts stated in the report that, overall, they see the current dominance of commentary and analysis based on various versions of risk premiums as another reflection of a market that is struggling to process changes in longer-term risk.
“Over time we would expect some focal point to emerge as an expression of the market’s medium-term re-evaluation of risk, and we still think the outlook for Iranian export flows is a likely candidate,” they said.
“Until that focal point emerges, trading may often follow the pattern of the past week, perhaps symptomatic of a market that knows that current geopolitical developments are important but that has not fully worked through the implications for the oil price curve,” they added.
“The back and middle of the Brent curve are currently sitting almost precisely where they were a year ago, while the front of the curve is flatter,” the analysts noted.
“We think the front of the curve is now too flat and does not represent global inventory levels or further Q4 inventory draws, and that the back of the curve is too low and does not fully reflect the change in longer-term risk or the weakness in private-sector capacity investment,” they went on to state.
A report sent to Rigzone at the start of October showed that Standard Chartered expected the ICE Brent price to come in at $98 per barrel in 2024, $109 per barrel in 2025, and $128 per barrel in 2026. In that report, the company’s first quarter 2024 to first quarter 2025 ICE Brent forecasts were also identical to its latest ICE Brent price projections.
The U.S. Energy Information Administration’s (EIA) latest short-term energy outlook (STEO), which was released on October 11, forecast that the Brent spot price will average $94.91 per barrel in 2024.
That STEO from October 11th, anticipated that the commodity would average $94.64 per barrel in the first quarter of 2024, $96 per barrel in the second quarter, $95 per barrel in the third quarter, and $94 per barrel in the fourth quarter.
The EIA’s previous STEO, which was released in September, projected that the Brent spot price would come in at $88.22 per barrel next year. That STEO forecasts the commodity averaging $91 per barrel in the first quarter of 2024, $88 per barrel in the second quarter, and $87 per barrel in the third and fourth quarters of next year.
At the time of writing, the price of Brent crude oil is trading at $86.09 per barrel. The commodity rose from a close of $72.26 per barrel on June 27 to a close of $96.55 per barrel on September 27, before dropping to a close of $84.07 per barrel on October 5. It then went on to close at $92.38 per barrel on October 19 before dropping to a close of $84.63 per barrel on November 1.
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