Oil market fundamentals are poised to be well balanced over the coming months on a combination of refinery maintenance, weak margins capping utilisation rates, and improved supply, Barclays noted in a report.
After dropping below $100/bbl from a packed tide of cross-currents from the sell-off in other asset classes, along with a stream of poor macroeconomic data from the US and China, prompt Brent prices have picked upand are back to trading above $100/bbl.
Over April-May, Barclays expects oil market fundamentals alone to offer very few catalysts for an immediate upside retracement.
“Iran remains the most important geopolitical story in the oil markets, in our view. Latest diplomatic talks between the P5+1 and Iran in April ended in a stalemate, dashing hopes of a major breakthrough, with no further meetings scheduled.
We believe Israeli calls for tougher action against Tehran will again grow louder if there is no discernible movement in the negotiations in the next few months. While inthe very near term we believe immediate geopolitical risks to oil supply have receded somewhat, there remain numerous others that continue to develop in the backdrop (Iraq, Syria, Yemen, and North Africa) and hold the potential to provide the catalyst for an upward breakout in prices.” Barclays noted.
In Iraq, there have been violent clashes between Iraqi security forces and Sunni demonstrators, sparking concerns that the country could descend into another round of serious sectarian unrest.
Libya and Nigeria continue to face serious security challenges that put their energy production at risk of disruption. Security concerns in Nigeria’s oil-producing region have resurfaced after a group claiming to be the Movement for the Emancipation of the Niger Delta (MEND) vowed to launch a new wave of attacks this month.
Even if MEND redux proves to be a pale imitation of the original organisation, Barclays believes that it will remain challenging for companies to operate in the Niger Delta and production will remain vulnerable to disruption.
The oil supply outlook has improved recently, due to reductions in non-OPEC shortfalls (from close to 1 mb/d over the January-to-February period) to the current level of 650 thousand b/d. OPEC supplies have adjusted lower over recent months to balance the market (given the lower call for prompt crude in Q1, due to maintenance).
For now, the fall in OPEC supply from its peak has helped increase spare capacity to roughly 2.7 mb /d and although it still does not represent the comfort zone of 5%, it is a much larger figure than in 2012, when key suppliers were stretching themselves to balance the market.
Source: Barclays