Barclays, Société Générale more positive about medium-term outlook
Oil prices pulled back Monday amid receding hopes for a production freeze deal and a broad perception that last week’s significant drop in U.S. crude inventories was unlikely to be sustained.
The November contract for global crude benchmark Brent LCOX6, +0.31% was down 1.4% at $47.34 a barrel, while its U.S. counterpart West Texas Intermediate CLV6, +0.39% was down 1.66% at $45.13 for October deliveries.
Most observers have agreed the massive 14.5 million barrel reduction in U.S. oil stocks was driven mostly by inclement weather and that there is a high likelihood prices are correcting themselves already in anticipation of a similarly sized buildup when data are released this week.
New York-based Morgan Stanley said in a note that it can account for 16 million barrels of “lost” U.S. inventory in terms of potential imports that couldn’t be unloaded and lost domestic production caused by bad weather in the Gulf of Mexico.
“Without this benefit, crude oil inventories would have built despite a new seasonal high for refinery runs,” analysts from Morgan Stanley said. “Hence, we expect the more bearish trend in U.S. crude inventories of late to persist.”
The inventory figures are leading to price volatility that is expected to continue through the fall. Market watchers believe this will be particularly evident if stockpiles continue to build in the U.S. and an agreement to freeze oil production isn’t ratified when members of the Organization of the Petroleum Exporting Countries meet other major producers in late September.
However, both Barclays and Société Générale are more positive about the medium term outlook.
Barclays said in a note that Asian oil demand growth is “waking up” and is the clear driver of global consumption growth. The bank has estimated that Asia oil demand growth will increase by 700,000 barrels a day in 2016, far outstripping its closest rival region North America, which looks set to see demand grow by 140,000 barrels a day in comparison.
Société Générale was cautious about prices in the short-term, but said they should recover through the winter and trade at $52.50 a barrel by the first quarter of 2017.
Nymex reformulated gasoline blendstock for October RBZ6, +0.98% — the benchmark gasoline contract — was up 0.32% at $1.37 a gallon.
ICE gasoil for September changed hands at $407 a metric ton, down 2.92%.