Brent Crude oil rices are expeced to drift lower in the coming weeks, after a rally this week in the event of absence of further escalation in tensions in Ukraine, according to an energy report from Barclays.Crude Oil rallied this week on rapidly spiralling tensions between Ukraine and Russia contributing more momentum than fundamental factors.

1. Exports from Libya have slowly started to trickle through, with oil tankers starting to load crude from the eastern port of Hariga for the first time since July 2013. Libyan oil production has also climbed to 330k b/d, from less than 200k b/d a week ago, according to its National Oil Company. The return of oil supplies into the market has so far failed to create a significant dent to this week’s price rally, but has the potential to weaken if the two largest eastern oil terminals, Ras Lanuf and Es Sider which together have a capacity of 560 thousand b/d, come online.

2. On the demand side, Chinese data released this week showed lacklustre growth rates. Globally, refinery maintenance continues to roll from the Atlantic to the Pacific, and although European refinery maintenance will fall to less than 1 mb/d in May, more than 2.2 mb/d of turnarounds is scheduled in Asia for
May and June, limiting the upside potential for prompt demand for crude oil loadings.

On the supply side, while OPEC production in March dropped sharply (by 600k b/d m/m), this is likely to improve in April. Saudi oil production according to the official data from the OPEC Secretariat has dropped to 9.56mn b/d in March, the lowest level since April 2013. In our view, this was partly due to two months of maintenance work at the 750k b/d Shaybah field, as well as a lower call placed on its crude due to refinery maintenance. (Note: The
actual maintenance is 100 thousand b/d). Output should recover this month as maintenance on the Shaybah field completes. On the demand side, the peak of refinery maintenance in Europe is drawing to a close, with May set to have less than 1mn b/d offline. However, in our view, refineries returning from maintenance are unlikely to boost runs significantly given the prospect of incoming US product exports to the continent, pressuring margins. In Asia, high refined product stocks could keep a cap on the rate with which refinery runs improve following maintenance.

Finally, although the aforementioned demand-supply dynamics point to a window of weakness in oil market fundamentals, the room for prices to move lower is unlikely to extend very far going into May when cargoes bound for the summer months start to be loaded. Early indications for instance suggest healthy demand for West African crude cargoes, combined with lower North Sea loading programmes.
Source: Barclays