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  • Writer's pictureArbat Capital

Oil Market Report - February 2024

The crude oil market in February 2024 was characterized by volatility, driven by a mix of positive economic data from the United States, geopolitical developments, and shifting market expectations regarding interest rates and inflation. Despite initial declines, both Brent and WTI crude oil prices showed resilience, recovering from their early-month lows.


The crude oil market in February 2024 was characterized by volatility, driven by a mix of positive economic data from the United States, geopolitical developments, and shifting market expectations regarding interest rates and inflation. Despite initial declines, both Brent and WTI crude oil prices showed resilience, recovering from their early-month lows. Moreover, both benchmarks managed to recover toward the end of the month close to their maximal levels over the past 3 months. As compared to the end of January, the ICE Brent near-month future contract added around $2.0, or +2.5%, to $82.66 per barrel while the NYMEX WTI front-month futures soared even more pronouncedly, growing by almost $3.0, or +3.9%, to settle at $78.87 per barrel as of February 27, 2024. Both benchmarks have risen close to their January highs which, in turn, are the highest levels since the late November 2023. The February 2024 crude oil market showcased the complexity of factors affecting prices, with U.S. economic indicators suggesting strength through job growth, wage rises, and productivity. However, the Federal Reserve's inflation-focused policy added investor caution, influencing the dollar and oil prices. Geopolitical tensions in the Middle East and Russian sanctions highlighted supply disruption risks, though global supply resilience and diplomacy mitigated some fears. Market reactions were also swayed by anticipations of supply changes and OPEC+ decisions, underscoring the significance of production and policies in market trends.

From a technical perspective, as of late February 2024, crude oil prices approached significant resistance levels, breaching which could pave the way to $90, and possibly even to the peaks seen in September 2023. Given oil market's muted response to favorable macroeconomic news from the United States and the overall optimism in the financial markets in February, it seems that participants on the oil market is now more focused on supply-side news rather than demand-side ones. Therefore, the most likely driver for further upward movement in March 2024 could be news about unexpected supply disruptions, whether those are new, more extensive attacks by the Houthis in the Red Sea, production halts at major fields in restive countries like Libya or Nigeria, or speculations about the extension of OPEC+ production cuts, including voluntary ones, into the second quarter of 2024. On the other hand, in the absence of such news, oil prices could start to correct in March due to their inability to breach technically important levels, leading to profit-taking by speculators on their long positions. From a longer-term perspective, the oil market has been trading in a broad range of $70-90 per barrel for Brent crude for the second consecutive year, a level that is comfortable for most OPEC+ countries, and this situation is likely to persist in the foreseeable future. Despite forecasts of further demand growth in 2024 to record levels of 103 million barrels per day or even more, it's important to remember that OPEC+'s unused capacities currently exceed 5.5 million barrels per day, which is more than enough to compensate for any supply shortfalls in the market this and next years.

Global oil production weakened in the first month of this year comparing to December 2023, falling back below the threshold of 102 million barrels per day (mbd). According to the most recent monthly report of the U.S. Energy Information Administration (EIA), the observed month-over-month contraction in oil output, quantified at a 1.45 mbd decrement, translated to a 1.4% MoM reduction from the preceding month. This downturn heralded the lowest production figure witnessed in a 5-month span, underscoring a discernible downtrend that has persisted for two consecutive months. Such a rate of decline was the most accelerated pace of contraction in nearly three years, or specifically over the last 35 months. Conversely, compared to the same juncture in the previous year, global oil production actually increased in January 2024 by 0.50 mbd, equivalent to a modest uptick of 0.5% YoY. This increment confirmed a sustained YoY growth trend that has been observed for 5 months in succession, although it was the slowest annual expansion witnessed in the last 4 months, indicating that while the recovery momentum is present, it is losing steam. When juxtaposed against the five-year average for the same month, the reported global production figures emerged positively as the data showcased an excess of 2.38 mbd, or a 2.4% increase.

Meantime, according to the International Energy Agency (IEA), while higher global oil production this year, led by the United States, Brazil, Guyana and Canada, should more than eclipse the expected rise in world oil demand, a sharp decline in output in January 2024 set the year off to a difficult start. Extreme weather conditions shut in more than 900 kbd of production across North America. The steep loss coincided with fresh OPEC+ voluntary output cuts of around 300 kbd, resulting in a massive 1.4 mbd month-over-month decline in global oil production. However, the rising wave of non-OPEC+ oil growth resumes in 2Q24, driving output on an upward trajectory for the rest of the year. According to the agency, world oil supply is set to increase by 1.7 mbd to a record 103.8 mbd in 2024, with non-OPEC+ providing 95% of the incremental barrels.

The Organization of Petroleum Exporting Countries (OPEC) experienced a notable contraction in its crude oil production in January 2024, marking a continuation of recent trends that signal a tightening in the global oil supply from the cartel. A decrease of 0.36 mbd from the previous month underscored a 1.3% MoM reduction, positioning the reported output level as the lowest observed in the past 31 months (2.5 years). This decrement extended a month-over-month downward trajectory now observed for the third consecutive month. Year-over-year analysis painted an even more pronounced picture of contraction within OPEC's production capabilities. The output has plummeted by 2.46 mbd compared to January of the previous year, translating to a serious 8.5% YoY downturn. This rate of decline represented the steepest year-over-year fall in output over the last 33 months. To a certain extent, so severe drop in OPEC oil supply was attributed to Angola’s decision to leave the cartel after 16 years of membership amid a dispute over oil production quotas, effective since December 2023. Libya's crude oil production dynamics in January 2024 were the starkest among all OPEC-participating nations, with a decrease of 162 kbd from the previous month, amounting to a severe 13.8% MoM drop. At the beginning of the month, local protests had forced a full shutdown of production at Libya's Sharara oilfield, which can produce up to 300 kbd or around one third of total Libyan crude oil output. Although the field was back to production after two weeks, the shutdowns have influenced country crude oil supply in January heavily. Kuwait's crude oil production in January 2024 experienced a substantial reduction in compare to the previous month as well, with output decreasing by 111 kbd, translating to a 4.4% MoM decline. The country has reduced its oil output further in the reported month to meet its additional voluntary supply cuts effective in the 1st quarter of 2024 announced at the most recent OPEC+ meeting.

The IEA and the EIA provided different assessments of OPEC total crude oil production in January 2024. While the EIA gave a somewhat more conservative estimate of cartel’s total output within the month of 26.25 mbd which was only 92 kbd (0.35%) lower than the OPEC’s own number, the IEA provided a much more optimistic figure of 26.73 mbd, exceeding OPEC's own figure by 388 kbd, translating to a 1.5% relative variance. The analysis of OPEC’s January 2024 crude oil production data provided by the three vendors elucidates the variances in estimates across key OPEC nations as well. While some countries like Saudi Arabia, Iran and Iraq showed only moderate deviations, others like the U.A.E. and Nigeria exhibited significant discrepancies.

In January 2024, the dynamics of non-OPEC total oil production witnessed a significant shift, marking a notable deviation from recent trends. The period observed a decrement in supply by 1.17 mbd compared to the preceding month, translating to a 1.7% MoM contraction. This decline signified the lowest production level in the past three months and disrupted a 4-month streak of sequential growth. However, the main reason behind so dramatic change was severe cold weather in the United States. That’s why, despite the month's downturn, non-OPEC total oil supply in January 2024 still experienced a solid growth of 2.64 mbd from the same month in the previous year, equating to a 4.0% YoY increase. This increment was part of a larger upward trend that has spanned 33 months. Furthermore, when juxtaposed with the five-year average for January, the supply surpasses the half-decade norm by 4.09 mbd, marking a 6.3% increase. The most part of major non-OPEC oil-producing nations showed weakening of oil production in January 2024 comparing to the prior month with the United States led the monthly setback. Countries like Angola, Russia and Kazakhstan also impacted to the overall output decline while only a small number of non-OPEC countries like India, Norway and Mexico managed to improve their oil supply relative to the end of 2023 year levels.

U.S. total oil production experienced a notable decline in January 2024, decreasing by 0.86 mbd from the preceding month, or -3.8% MoM. This reduction marked a significant pullback, bringing the output to its lowest point in the past 7 months. Such a monthly decline was not only substantial but also represented the most rapid pace of decrease observed in over a year and extended a month-on-month downward trend for the second consecutive month. However, as it was noted earlier, the setback in oil production in the country was driven mainly by very cold weather established in the second half of the month in major U.S. oil-producing regions, including North Dakota. That’s why, on a year-over-year basis, the U.S. total production increased in January 2024 by 0.71 mbd relative to the same month last year, translating into a growth rate of 3.4% YoY. This increment continued a remarkable upward trend that has been sustained for 34 consecutive months (almost 3 years), underscoring the industry's resilience and capacity for expansion over the medium to long term. However, it's noteworthy that this growth, while positive, represented the slowest annual expansion in the past 13 months, suggesting a certain deceleration in output growth. Meantime, compared to the five-year average for January, the reported output exceeded by 1.96 mbd, marking a substantial increase of 10.0%.

U.S. shale oil production experienced a remarkable contraction in January 2024 as well, with supply declining by 380 kbd from the previous month, posting a 3.8% MoM decrease. This downturn interrupted a two-month upward trajectory, recording the steepest month-over-month drop in the past 35 months. Despite this, the year-over-year analysis showed a continued growth trend, with a 266 kbd increase compared to the same month last year, representing a 2.8% YoY growth. However, it's essential to note that this was the slowest YoY growth rate observed over the last 33 months, although during this entire period an upward YoY in the U.S. shale oil production was observed. Even so, compared to the five-year average for January, shale oil supply was up by around 1.0 mbd, an 11.6% increase, indicating a robust long-term growth trend. All major US shale oil fields demonstrated reduction in output in January 2024 comparing to the last month of the year prior affected by abnormally severe weather conditions. The Permian Basin experienced the most notable contraction, albeit maintaining its dominant position with a sustained upward trajectory on a year-over-year basis. The Bakken field also faced a steep decline, marking a significant reversal from previous trends and underscoring the challenges of sustaining growth.

The International Energy Agency (IEA) reported in February that the expansive post-pandemic growth phase in global oil demand has largely run its course. The pace of growth already eased sharply, from 2.8 mbd in 3Q23 to 1.8 mbd in 4Q23, with an apparent slowdown in China underpinning an 830 kbd decline in consumption in the final quarter of the year. The deceleration will gather pace in 2024, with world oil demand growth forecast to average 1.2 mbd, only half last year’s solid expansion. As in 2023, gains will be dominated by a few key countries, most notably China, and to a lesser extent India and Brazil. The three major economies are set to account for 78% of growth in global oil demand in 2024, that is forecast to reach a new peak of 103 mbd.

Meantime, the EIA data also revealed a somber picture of global demand for crude oil and petroleum products performance in January 2024. There was a decrease in oil consumption by 2.56 mbd from December 2023, representing a 2.5% MoM drop. This reduction marked the most significant monthly decline observed in the past 12 months and interrupted an upward trend that had persisted for two months. Moreover, the volume of total oil use in the world sank to its minimal level throughout the past 8 months. The decline was fueled by simultaneous weakening of oil consumption both in OECD and non-OECD countries, though the first ones demonstrated somewhat worse shrinkage of their aggregate oil use during the month under reported. In contrast, when comparing January 2024 to the same month in the previous year, there still was a noticeable increase in total oil consumption around the world by 2.67 mbd, or +2.7% YoY, continuing a 13-month streak of year-over-year increases. Additionally, this annual expansion was the most pronounced in the last 20 months, indicating a robust expansion phase relative to previous periods. Furthermore, the reported global oil consumption exceeds the 5-year average for January by 4.29 mbd, or +4.5%. Both OECD and non-OECD groups still have delivered solid expansion of their demand relative to a year ago.

Global observed oil stocks plummeted by about 60 million barrels (mb) in January 2024, according to the preliminary data of the IEA, with on-land inventories falling to their lowest level since at least 2016. However, in December 2023, global stocks rose by 21.6 mb as a surge in oil on water (+60.7 mb) more than offset draws in on-land inventories (-39 mb). In turn, total OECD commercial oil stocks fell by 24.1 mb in December 2023, reflecting declines in all three regions.

As for more detailed data, OECD total commercial oil inventories saw a slight decrease of 290 thousand tons in November 2023 comparing to the previous month, in accordance with the IEA’s dataset, marking a modest 0.1% MoM decline. Nevertheless, this humble change drove the volume of the stocks to their new lowest level recorded in the last 81 months (more than 6.5 years), continuing a downward month-over-month trend observed for the 4 consecutive month. Hence, this period also witnessed the slowest rate of month-over-month decline in the past 4 months. When looking at the year-over-year comparison, there was a significant reduction in inventories in the OECD of 9.5 million tons from the same month in the previous year, equating to a 2.0% YoY decrease. This continued a downward trend observed year-over-year for consequent 10 months, showcasing the fastest rate of decline within the past 7 ones. Compared to the five-year average for November, the production was significantly lower by 55.6 million tons, a notable 10.7% decrease.

U.S. total oil inventories saw a slight contraction in January 2024, declining by 3.87 mb, representing a marginal decrease of 0.2% from the preceding month. This shift positioned the total inventories at their lowest point during the last quarter, underlining a continuation of a two-month downward momentum. Also, this was the most pronounced month-on-month rate of decrease observed in the past three months. On a year-over-year basis, the U.S. total inventories experienced a more significant reduction of 16.67 mb, or a 1.0% YoY decrease, marking the steepest annual decline within a comparable three-month timeframe. When juxtaposed against the five-year average for the same month, the reported inventory levels were markedly lower by 236.23 mb, a substantial 12.8% reduction, indicating a significant deviation from historical norms. The monthly decline of the U.S. total oil inventories in January 2024 was again driven by further depletion of the commercial oil stocks in the country, while the Strategic Petroleum Reserves (SPR) again saw a certain increase within the month, reaching the apex of their volume over the preceding 9 months, with the recent expansion being the most rapid in the last 43 months (3.5 years).

Meantime, crude oil inventories at Cushing, Oklahoma, recorded a strong decrease of 6.59 mb in January 2024 from the previous month, marking a dramatic 19.0% MoM reduction. This adjustment not only signified the termination of a two-month period of inventory accretion but also stood out as the sharpest month-over-month drop observed in the past 4 months. A year-over-year comparison revealed an even more pronounced contraction in stockpiles as the inventories have dwindled by 9.91 mb when juxtaposed against the figures from the same month last year, translating to a stark 26.1% YoY decline. This rate of decrease was unparalleled in the last 13 months, highlighting a significant contraction in storage levels that could have implications for future market dynamics. Furthermore, when the reported inventory levels were measured against the five-year average for January, a substantial discrepancy was evident. The stockpile stood 10.93 mb lower, equating to a 28.0% decrease.

The global floating oil inventories recorded a notable contraction in January 2024, marking a significant point in the recent trends observed in offshore oil stocksThe month saw a decrease of 4.88 mb from the previous month, translating to a 5.9% MoM decline. This reduction brought the inventories to their lowest level in 16 months, underscoring a pronounced downward momentum. Delving deeper into a year-over-year analysis, the data revealed a persistent downward trajectory over the past 4 months. Specifically, when compared to the same month in the previous year, January 2024 experienced a reduction of 5.48 mb in oil stocks, equivalent to a 6.6% YoY decrease. This decline, while part of an ongoing trend, was the slowest YoY rate of decrease recorded over the past 4 months. Moreover, when juxtaposed against the five-year average for January, the reported inventory levels were 0.36 mb lower, indicating a modest drop of 0.5%. This comparison with historical averages further illuminates the tightness in offshore oil stocks. The dynamics of global offshore oil inventories in the month under report were mixed. While Asia saw an increase in its inventories, Europe faced a sharp decline, marking its steepest month-over-month drop in the past year. The Middle East Gulf and West Africa further highlighted the disparity, with the former experiencing a substantial decrease in stocks, the largest in recent months, whereas West Africa reported a solid growth.

AC - Oil Market Report - Feb-2024
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