Houston, TX — In a report sent to Rigzone late last week, analysts at Standard Chartered revealed that the company’s U.S. oil data bull-bear index rose 29.1 points “taking it to an ultra-bullish +98.4”.
“After months of providing remorselessly weak signals about the health of the U.S. economy and the global oil market, the weekly Energy Information Administration (EIA) data is now sending significantly more positive messages,” the analysts noted in the report.
“This is the second-strongest reading on record. It is the second consecutive ultra-bullish reading; the average across the two weeks is the highest on record,” the analysts added.
In the report, the Standard Chartered analysts highlighted that inventories fell against the five-year average in all categories except jet fuel, “with large draws against the average in crude oil (7.08 million barrels of which 3.21 million barrels was at Cushing), gasoline (6.04 million barrels) and distillates (3.88 million barrels)”.
“Gasoline inventories are now particularly tight; they are at an eight-year low for March and just 2.39 million barrels above the seven-year low for any week in H1,” the analysts added.
The analysts noted in the report that U.S. commercial inventories reached a peak deficit to the five-year average of 151.7 million barrels at the start of June 2022, “coincident with the peak in prices”. The deficit was filled by mid-February this year after which a surplus grew, peaking at 34.7 million barrels three weeks ago, the analysts said in the report.
“The surplus shrank in the latest release to just 1.6 million barrels, and the U.S. market now appears to be on the brink of tipping back into deficit,” the analysts stated.
Standard Chartered analysts also highlighted in the report that the demand element of the data was stronger.
“The four-week average of the demand bull-bear sub-index became positive for the first time since mid-April 2022 , helped by YTD gains in gasoline and jet fuel but held back by distillates,” they said.
“The improvement in the data and the likely contraction in global inventories over coming months should eventually support an improvement in oil market sentiment; however, for the moment the tone among hedge funds in particular seems to have remained stubbornly downbeat,” the analysts added.
In a separate report sent to Rigzone on March 31, analysts at Standard Chartered outlined that distillate demand was “perhaps the only weak feature” of the latest Energy Information Administration release at the time, adding that the rest was “extremely strong”.
“Our U.S. oil data bull-bear index increased 66.5 week on week to an ultra-bullish +79.8; only one release has been stronger in the past 18 months,” the analysts stated in that report.
“Crude inventories fell by 10.28 million barrels relative to the five-year average, product inventories fell by 4.45 million barrels against the five-year average,” the analysts added.
Bullish Capital Flows
In an oil report sent to Rigzone on Monday, analysts at Macquarie Bank Limited noted that they expect “bullish capital flows to continue for the time being as the [OPEC+] production cuts will drive storage draws given current market expectations for demand, which have largely remained intact despite global recession concerns”.
The analysts warned in the report that they expect the market’s expectations for large draws in the second half of the year will moderate “due to (1) NOPEC supply response, (2) demand disappointment, and (3) OPEC+ deal compliance challenges”.
“Following last week’s OPEC+ announcement, both WTI and Brent prices have increased by approximately $5 per barrel, suggesting the market is expecting 50 percent compliance,” the analysts said in the report.
“The rule of thumb is $1 per 100,000 barrel per day loss of crude supply,” they added.
In the report, the Macquarie analysts said WTI and Brent both built speculative net length, highlighting that WTI rose by 39K and Brent rose by 68K.
“Notably, money managers increased their bullish bets on ICE Brent resulting in the highest number of longs in the last three weeks and the smallest number of shorts seen in the last month,” the analysts said in the report.
“WTI+Brent speculative net length increased by 107.1K contracts to 282.7K; shorts decreased by 55.9K, while longs increased 51.3K. Managed Money net positioning increased by 140.9K to 402K; shorts decreased by 72.8K contracts, while longs increased 68.1K,” the analysts added.
“Brent MM + Other net short fell by 68.1K contracts to -28.4K; shorts fell by 27.3K, while longs grew 40.8K. Brent Managed Money net length grew by 80.5K contracts to 236.5K; shorts fell by 34.1K, while longs grew 46.4K. Brent Other net short grew by 12.4K contracts to -264.9K; shorts grew by 6.8K, while longs fell 5.6K,” they continued.
In a separate Macquarie report sent to Rigzone on April 6, analysts at the company noted that they were “relatively less bearish than before the [OPEC+] cut” but added that they remained cautious about “overly bullish sentiment”.
“Our caution is driven by risks related to unusually large deal slippage potential, an ongoing large global supply response, and the potential that demand disappointments versus currently optimistic expectations,” the analysts stated in that report.
“Bulls correctly note that OPEC cuts are a key geopolitical factor that should always be imbedded into S-D balances. While we agree, we also think that correctly interpreting the cuts is important,” the analysts added.
“We believe that OPEC, through its vast window into global markets, was seeing large, YTD and Bal 2023 surpluses,” they went on to state.
In an extraordinary market note sent to Rigzone earlier this month, Rystad Energy Senior Vice President Jorge Leon highlighted that the OPEC+ supply cuts are scheduled to start from May, “which coincides with the refinery pre-summer season ramp up and an anticipated refined products demand rebound”.
“Saudi Arabia will shoulder most of the cuts, reducing production by 500,000 barrels per day,” Leon said in the market note.
“Other participants are the UAE (144,000 bpd), Kuwait (128,000 bpd), Iraq (211,000 bpd), Oman (40,000 bpd), Algeria (48,000 bpd) and Kazakhstan (78,000 bpd), according to statements from their respective governments,” he added.
“Russia also announced that the existing 500,000 bpd production cut, initially from March to June, will be extended till the end of the year,” Leon continued.
The Rystad Senior Vice President highlighted in the note that the voluntary reductions are in addition to the current official OPEC+ cuts of two million barrels per day announced back in October 2022.
“The fact that all these countries are adhering to the current OPEC+ quotas, with compliance levels at close to 100 percent, implies that the announced voluntary cuts will also most likely be real,” Leon stated in the note.
*Andreas Exarheas, [email protected]