Barclays expects a retracement in Brent Crude futures by the tail end of June, with the current centre of oscillation of the grade supposed to get shifted from $101 to the higher end of the range.
The context and the reason
Mid-June is expected to see 1mn b/day of refining capacity to come online in Asia and another 0.5 mb/day capacity in Europe.
“As these refineries come back online, we do not expect them to run at full utilisation rates given the risk of pressurising margins again. The recovery in prompt demand is therefore expected to be slow and steady rather than a brisk rebound", Barclays said.
The past two weeks, had seen refinery margins improve not so much because of the increase in demand but because of refineries going slow on output. This strategy may be continued with as they refrain from ramping up run rates so that margins improve which in turn may support Brent futures to the upside.
With the exception of the Arab Super Light, Saudi Arabia has also brought down its Official Selling Price across other grades. This discount may prompt refiners to take more of crude oil in as the summer may see rebound in demand and end-consumption makes a comeback.
“While the state of market balances improves, the increasing frequency and intensity of geopolitical elements in the back ground (Iraq, Syria, and Yemen) also have the potential to bring upside risks and propel prices outside this range going into the second half of the year”, Barclays said in the report.
Robust job data coming out of US on Friday helped the Brent crude oil futures for delivery on July 13 to close at $104.72 a barrel, a gain of $1.10 or 1.07%.
Fundamentals
On the supply side, Buzzard oil fields in North Sea region has seen repeated halting of pumping as the operator blames action on equipment malfunction. Last week, the oil field saw disruption occurring on Thursday. Though the flow was restored on Friday, the pumping was way below the capacity of 160K b/d at 125K b/d. The Buzzard outage is in addition to significant shutdown that Ekofisk may experience spanning June, as maintenance works are carried out.
“These outages showcase the inherent issues of ageing and depleting fields in the North Sea. They also serve to tighten regional balances which in the short term could provide some support to the North Sea strip,” Barclays noted in the report.
Reports say that Nigeria has declared a force majeure, this time on exports of Usan grade crude in addition to the same prevailing in Bonny Light exports. The Usan force majeure is indecipherable even as that of Bonny Light exports have been attributed to pipeline repairs. Thieves reportedly damaged pipeline carrying crude.
Action on Usan crude “has affected 127 thousand b/d that were part of the June loading programme for the grade.”
Source: Barclays