Daily Oil Fundamentals

Between the Devil and the Deep Sea

It is 4Q versus 2024, supply deficit against economic malaise, the central bank of the oil world facing the central banks of the developed world. Some of the decisions on interest rates matched expectations but the narrative has turned hawkish. The Fed, the Riksbank and the BoE have all paused rate hikes but warned of their preparedness to raise it again if warranted. The Norwegian central bank was more straightforward and said that deposit rates will go up again in December after hiking them by 25 basis points yesterday. The BoJ stuck to its dovish stance and kept rates in negative territory. Inflation is easing in some cases, however increasingly likely elevated borrowing costs throughout 2024 justifiably cause anxiety amongst investors.

Consequently, oil was taking its cue from equities and Wednesday’s sell-off was followed through yesterday morning. Whilst weak lengths were flushed out questions were asked whether next year’s grim outlook would have any impact on the 4Q oil balance which foreshadows a massive supply deficit and stock drawdown. The answer was provided by Russia. One of the biggest oil exporters has decided to ban product exports to ease domestic fuel shortage. The move, which bears clear resemblance to last year’s decision to weaponize natural gas, immediately sent prices into positive territory, however, with the understandable exception of Heating Oil and Gasoil, the market eventually settled in the red. Despite the lukewarm reaction to the latest, seemingly desperate, Russian move, one has to brace herself for a lean winter as far as supply and inventories are concerned.

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Today’s data




HCOB Manufacturing PMI Flash Sep.




S&P Global/CIPS Manufacturing PMI Flash Sep.




S&P Global Manufacturing PMI Fash Sep.



Irreconcilable Differences

Changes are inevitable and sometimes they happen for the better, other times for the worse. It really is a question of taste and self-interest how the new reality is dealt with. It is, however, an undisputable fact that in the last 18 months geopolitical and economic matters are handled more contentiously than before the Ukrainian conflict. Fragmentation, polarization, and divisiveness are all signs of the changing world order where the battle for dominance intensifies, and tensions flare up almost on a weekly basis. Well-established institutions and organizations that are meant to ensure stability are quickly losing relevance. Four of the five permanent members of the UN Security Council did not bother to represent themselves at the highest level in this week’s meeting, throwing doubts on the effective functioning and even existence of the body. On the other hand, new groups or alliances are being established and existing ones expand. Just think of the enlargement of BRICS or, on the other end of the spectrum, the invitation of the African Union to the G20. Whether these changes are the function of political and economic myopia, or an irreversible process that will shape geopolitics for decades to come is early to conclude. Nonetheless, what we see is that this far-reaching polarization permeates our market, too.

For the sake of all stake holders oil consumers and producers should actively engage in co-operating with one another in order to, as laid out in the OPEC Statute, ‘devise ways and means of ensuring the stabilization of prices in international markets with a view to eliminating harmful and unnecessary fluctuations’. Yet, the world’s most significant producer group and the energy watchdog of OECD nations have locked horns over the past year or so and accusations of biased approaches frequently fly back and forth. The fault lines have probably never been clearer. As the shift from fossil fuel to renewables is irrevocably under way oil producers use every available forum to underline the danger of hastily and irresponsibly transitioning away from oil whilst consumers are quick to criticize oil exporters of unnecessarily inciting price spikes and volatility with their market management policies.

The war of words and the flare ups in tension between the OPEC producer alliance and the International Energy Agency began in 2021 when the IEA warned in its landmark report that to achieve the net-zero target by 2050, in addition to scrapping the sales of fossil fuel boilers by 2025 and halting the sales of diesel and petrol cars by 2035, there should be ‘no investment in new fossil fuel supply projects, and no further final investment decisions for new unabated coal plants’. The head of the agency has repeatedly slammed the alleged contradictory climate policies of oil companies.

Tension rose when the OPEC+ producer group ignored calls from major consuming nations last April to release more barrels to the market to mitigate the price impact of Russia’s invasion of Ukraine, which sent Brent as high as $139/bbl by March 2022. OPEC went as far as to stop relying on IEA data, one of the six secondary sources they used to calculate production levels. In April this year the IEA warned OPEC to be careful with its output policy and noted that the alliance short and medium-term interests were not aligned. The riposte from OPEC’s Secretary General was unambiguous as Haitham Al Ghais stressed that production constraints were focusing on oil fundamentals and were not targeting price.

The latest chapter in the consumer-producer saga was opened last week. The Executive Director of the IEA, Fatih Birol highlighted that his agency expects, as it will be presented in next month’s World Energy Outlook, demand for the three fossil fuels, oil, gas, and coal to peak earlier than anticipated, ie. at the end of the current decade. The forecast was labelled as risky and irresponsible by the subsequent OPEC press release, which noted that ‘consistent and data-based forecasts do not support this assertion’.

Reciprocal allegations of biased reporting and projections will plausibly continue in coming months and years. Its harmful impact is best displayed in estimates of the monthly publications on global oil balance. The latest prognosis from the IEA sees demand for OPEC oil to fall to 28.43 mbpd in 2024, an annual contraction of 270,000 bpd whilst OPEC expects it to climb by 800,000 bpd to 30.02 mbpd. It is simply unviable to tell which one is the more credible estimate (maybe the mean will turn out to be the answer), nonetheless what is certain is that forward planning in the oil market is becoming an impossible task and lack of consensus and transparency is becoming the norm.

Overnight Pricing


22 Sep 2023