The oil market isn’t broken, it’s just a response to oversupply
- Standard Chartered: The latest sell-off does not mean a market crash.
- Standard Chartered analysts say the market is “running well” and the simple answer is “swing sharply into surplus”.
- Stanchart analysts estimate the third-quarter surplus at 1.82 million barrels per day.
With oil prices continuing to slide, with the latest selling triggered by a sudden surge in crude oil and another SPR release, commodity analysts at Standard Chartered say the oil market hasn’t fundamentally broken but is only responding to the surplus.
In his latest commodity market update Thursday, Stanchart said the global oil market is currently oversupplied, with the US transferring an average of 0.83 million barrels per day (mb/d) to commercial stocks in the third quarter.
Stanchart analysts estimate the third-quarter surplus at 1.82 million barrels per day, and suggest that forecasts – particularly from US investment banks – that had a potential $150 oil supply were wrong and that the market “has not yet fully priced to what extent the assumption has been proven wrong.”
While forecasters have blamed market mechanism failure, volatility, irrational traders and low liquidity for the recent drop in oil prices, Standard Chartered analysts say the market is “working well” and the simple answer is a “sharp swing in surplus”.
Now, “with a significant global outflow and transfers available to rebuild inventories, US oil data was mainly bearish in the third quarter,” Standard Chartered wrote, adding that “the latest release from the Energy Information Administration (EIA) continues that trend, by US oil data, bullish bear fell 8.3 w/w to -70.0, very bearish.
Standard Chartered described the initial indications for September demand as “weak”, noting that “demand for all products is lower year-over-year except for other oils. Distillate data was particularly weak, with a steep inventory build of 4.22MB and lowest implied demand in 20 months. “.
By Alex Kimani for Oilprice.com
More Top Reads from Oilprice.com:
Download the free Oilprice app today
Go to the home page