U.S. inflation expectations fell to their lowest level in more than two years in September as consumers became more optimistic about the economic outlook. Preliminary data from the University of Michigan shows consumers expect inflation to be 3.1% over the coming year, down from the 3.5% forecast in August and the lowest since early 2021.
U.S. National Security Adviser Sullivan: The United States remains in regular contact with Saudi officials to ensure stable and affordable energy supplies.
Australian union representative Offshore Alliance: Members stopped work at Chevron’s Australian LNG plant for another 24 hours.
MARKET VIEWPOINTS
Broker PVM Oil Associates
The main reason for the recent rise in oil prices is Saudi Arabia’s determination to reduce global oil inventories through voluntary production restrictions. Oil inventories are falling sharply, while interest rates appear to have reached or are very close to peaking, and the tightening cycle is nearing the end. It has been interesting to observe the actual impact of oil on economic data. Due to strong retail gasoline prices, the overall CPI and PPI in the United States increased, and retail sales also showed a significant increase in fuel expenditures. Pessimists would argue that something will have to give in the near future. Either oil prices must move lower and CPI and PPI continue their downward trend; or inflationary pressures will start to rise again, forcing monetary policymakers to keep borrowing costs higher for longer than currently expected, or even raise interest rates again. Still, optimism currently prevails.
-For some time, bears have been able to rely on the global macroeconomic environment, which has hindered the progress of higher oil prices. But more recently, Saudi/Russian success in tightening crude supplies, as acknowledged in all three monthly reports from the EIA, IEA and OPEC, has diminished this impact. Oil’s relationship with the dollar has also changed.
With all oil watchers talking about refinery turnarounds, the ultimate direction of oil prices will depend on how the refinery turnaround dilemma is resolved. A Bloomberg article tracking global congestion changes by region also shows that congestion in Asia-Pacific, Europe and North America has increased on a weekly and annual basis. More severe congestion means more vehicle use and refined fuel demand.
Comprehensive market analysis
Analyst Lallalit Srijandorn wrote that the International Energy Agency warned last week that the oil market’s supply shortage will worsen in the fourth quarter. Saudi Arabia and Russia announced production cuts this summer, exacerbating the supply shortage. However, a lack of refineries is another reason why global middle distillate inventories are well below normal levels. The situation is particularly severe in Europe and North America, as some refineries have been shut down and others converted to biofuel production facilities during the pandemic. The remaining capacity appears to be enough to produce gasoline to meet demand, but not enough to produce demand for diesel and other middle distillates.
Analysts at Rystad Energy said that any small impact on operating inventories could lead to a large market impact and be transmitted to the consumer side. Goldman Sachs pointed out that the refining and chemical system is in a state of structural tension. The background is that about 4%-5% of global refining and chemical production capacity has been closed in the past five years.
Energy consulting firm Wood Mackenzie
The oil market has come back to life, with prices finally meeting our expectations for 2023. In early September, Brent crude oil prices exceeded $90 per barrel, the highest level since the conflict between Russia and Ukraine last year. We initially forecast Brent reaching $90/barrel by the middle of the year, but demand growth will take longer to materialize due to a weakening global economy. Although we have lowered our demand forecasts, 2023 will still be another year of strong recovery from the COVID-19 epidemic. We now expect global demand to increase by 2 million barrels per day this year, just shy of 2022 and the sixth-highest annual increase this century. Global demand is now at a record high of more than 102 million barrels per day. The rise in crude oil is mainly due to the supply side, especially Saudi Arabia and Russia, which announced on September 5 that they would extend oil production cuts until the end of the year. As non-OPEC production increases exceed demand in 2023, and OPEC+ production cuts play an important role in keeping the market balanced, these extensions mean that fourth-quarter crude inventory declines will be greater than we expect, potentially leading to a tightening of the crude oil market in 2024. We expect supply in both crude oil and refined oil markets to tighten in the coming months, and predict that the average price of Brent crude oil will reach US$90/barrel in 2024, an increase of 7% from this year. OPEC+ has every reason to continue supporting the market, as strong cash flow generation is the reward for balancing fundamentals.
Dailyfx analyst Manish Jaradi
Crude oil’s rise appears to be getting stronger, as evidenced by the steeper upward trend since June. Since the end of 2022, crude oil has repeatedly broken through horizontal trendline resistance, triggering a multi-month sideways area breakout that opened the way to the October high of 93.00. A bullish breakout triggered a double bottom pattern (March and May lows), indicating a potential move to 103, with subsequent upside breakout support at the intersection of the 89-day EMA and the 200-day EMA. Last month’s break above the horizontal trendline from January (around 83.00) locked in a multi-week range breakout. Oil prices look set to test another horizontal trendline from 2022 (around 93.00), which would be key confirmation of the resumption of the broader uptrend.
