Oil Prices Swing: 6.3% Rise Nearly Erases 7% Loss

• Recent weeks saw oil prices swing dramatically, with a 6.3% gain in WTI nearly offsetting the prior week’s 7% loss.
• U.S. crude production recovered to 13.3 mb/d, with minimal growth prospects, further tightening the supply outlook.

The oil market has commenced the new year with prices remaining in a narrow range as concerns over fundamental weaknesses and the spectre of an economic downturn continue to outweigh the geopolitical uncertainties at play. Despite these fears, analysts from Standard Chartered have come forward to challenge the dominant market sentiment. They argue that the fundamentals of oil are stronger than currently recognized and that geopolitical risks are grossly underestimated.

The journey of the oil market has been anything but stable. Following a tumultuous period marked by significant recovery, where more than 7% in losses were recouped within a week, WTI crude demonstrated resilience with a 6.3% rise. Although this recovery was notable, it fell just short of fully reversing the downturn from the previous week. This recent volatility highlights the market’s sensitivity to immediate factors while potentially overlooking broader, more significant trends.

U.S. Crude Stabilises at 13.3mb/d Amid Tight Supply

Standard Chartered’s latest insights suggest a market that is much tighter than current prices indicate. A key factor in this analysis is the noticeable shift in oil balances from 2022 to 2023. The traditionally observed January surplus has dramatically reduced from a two-decade average of 1.2 million barrels per day to just 0.3 mb/d this year. This significant change signals a tightening market, contradicting the bearish outlook suggested by current price trends.

Moreover, U.S. crude oil production has stabilised at 13.3 mb/d following disruptions caused by weather-related incidents. However, projections suggest that supply will plateau, with negligible growth expected for the remainder of the year. This forecast is in line with Standard Chartered’s expectation of a slowing, potentially reversing, growth trend in U.S. crude supply by the end of 2024, further tightening the global oil supply.

Underestimations and overlooked potential fill the current narrative surrounding the oil market. Despite the constrained price range and looming economic uncertainties, the underlying fundamentals and geopolitical dynamics point to a tighter market scenario than many widely acknowledge.

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