- Recent weeks have seen a significant swing in oil prices, with WTI's roughly 6.3% rise offsetting the previous week's 7% loss.
- US crude oil production rebounded to 13.3 million barrels per day, with slim growth expectations, further tightening supply expectations.
The oil market has started the new year with prices remaining in a narrow range as concerns about fundamental vulnerabilities and the specter of economic contraction continue to outweigh prevailing geopolitical uncertainties. Despite these concerns, analysts from Standard Chartered have stepped forward to challenge prevailing market sentiment. They claim that oil fundamentals are stronger than currently recognized and that geopolitical risks are largely underestimated.
The oil market journey has not been stable at all. After a turbulent period marked by a significant recovery, where more than 7% of losses were recovered within a week, WTI showed resilience with a 6.3% rise. Although this recovery was notable, it was unable to completely reverse the contraction seen the previous week. This recent volatility highlights the market's sensitivity to immediate factors while potentially ignoring broader, more important trends.
US crude stabilizes at 13.3 million barrels per day amid tight supplies
Standard Chartered's latest insights suggest a much tighter market than current prices indicate. A key factor in this analysis is the observed shift in oil balances from 2022 to 2023. The traditionally observed surplus in January has fallen dramatically from a two-decade average of 1.2 million barrels per day to just 0.3 million barrels per day this year. This significant change indicates a tightening market, which is contrary to the bearish outlook suggested by current price trends.
Furthermore, US crude oil production stabilized at 13.3 million barrels per day after disruptions caused by weather-related incidents. However, forecasts are that supply will stabilize, with little growth expected over the remainder of the year. These forecasts are in line with Standard Chartered's forecast of a slowdown, and perhaps a reversal, of the growth trend in US crude supplies by the end of 2024, further tightening global oil supplies.
Underestimated and overlooked potential fills the current narrative surrounding the oil market. Despite the limited price range and looming economic uncertainties, underlying fundamentals and geopolitical dynamics point to a tighter market scenario than many widely acknowledge.