Oil analysts and executives from across the industry are starting to sound more upbeat than they have for a while at International Energy Week in London.
Speakers at events taking place around the main conference painted a picture of a market that’s beginning to look tight — at least if you peer into the right places and through the right lens.
As ever, it’s all about perspective.
The redirection of cargo flows caused by the turmoil in the Red Sea has squeezed the Atlantic Basin oil market. That’s pushed onshore inventories in developed nations to their lowest for the time of year since at least 2020, according to figures from data analytics firm Kpler.
Red Sea Attacks Lead to Shrinking OECD Stockpiles
Inventories slide to lowest in at least four years
Those stockpiles have been trending down ever since they surged during the pandemic, and the withdrawal of 220 million barrels from the US Strategic Petroleum Reserve in 2022 had a lot to do with pushing them lower.
But the tensions have simultaneously boosted the amount of oil at sea to a six-month high, data from Vortexa Ltd. show. That will eventually arrive where it’s needed.
There is still a “significant risk” that the situation in the Middle East could deteriorate, RBC Capital Markets’ Helima Croft said. But without it shutting production somewhere, we may already be at maximum disruption.
Russian crude heading to Asia and Saudi barrels for domestic use are almost the only cargoes still transiting the southern Red Sea. Vitol Group’s Giovanni Serio warned that the oil market cannot afford lower Russian supplies.
Unless, of course, any reduction is offset by increased output from other members of the OPEC+ producers group. That seems unlikely.
Saudi Arabia, the collective’s de facto leader alongside Moscow, has shown itself willing to make deep cuts while allowing Russia to pump almost at will. It has taken the latter 11 months to implement a pledged output drop of 500,000 barrels a day.
In that time, Riyadh has slashed its own production by nearly three times as much.
Several members of OPEC+, including the Saudis, will decide in the next few days whether to prolong voluntary output cuts pledged for the first quarter of the year. The market has already bet they will.
A decision to extend the cuts would show that one important part of the oil market doesn’t yet see tightness.
–Julian Lee, Bloomberg News
Share This:
