Oil market deficit seen temporarily supporting Brent prices in Q4 - Citi

Investing.com -- Brent crude oil prices could be bolstered in the near-term by demand possibly outstripping supply in the fourth quarter, according to analysts at Citi.

A reported decision by the Organization of the Petroleum Exporting Countries and its allies to delay the beginning of a tapering in voluntary output cuts, along with ongoing supply losses in Libya, is predicted to contribute to a oil market deficit of around 0.4 million barrels per day in the final three months of 2024, the Citi analysts said.

They added that such a trend could offer some temporary support to Brent "in the $70 to $75 per barrel range."

Meanwhile, the benchmark could be further boosted by a potential rebound in recently tepid demand from top oil importer China, the analysts said.

But they flagged that they still anticipate "renewed price weakness" in 2025, with Brent on a path to $60 per barrel due to an impending surplus of one million barrels per day.

On Thursday, crude prices were higher after a super-sized interest rate cut from the US Federal Reserve elicited a mixed reaction from traders, while worries over global demand also lingered.

By 03:30 ET, the Brent contract gained 0.9% to $74.34 per barrel, while U.S. crude futures (WTI) traded 1.0% higher at $70.58 per barrel. The benchmarks had recovered after slipping in Asian trading, with Brent in particular hovering near its lowest mark of the year.

The Fed slashed interest rates by 50 basis points on Wednesday and indicated that it would announce further cuts this year, as the central bank kicks off an easing cycle to shore up the economy following a prolonged battle against surging inflation.

Lower rates usually bode well for economic activity, but the Fed’s aggressive cut also sparked some concerns over a potential slowdown in broader growth.

While Fed Chair Jerome Powell moved to soothe some of these fears, he also said that the Fed had no intention of returning to an era of ultra-low interest rates, and that the central bank’s neutral rate was likely to be much higher than seen in the past.

His comments indicated that while interest rates will fall in the near-term, the Fed was likely to keep rates higher in the medium-to-long term.

Meanwhile, US government data released on Wednesday showed a bigger-than-expected, 1.63 million barrel draw in inventories, which analysts at Citi said was due to lower net imports and domestic production "outpacing" a drop of crude oil consumed by refineries.

"US crude output was hit by Hurricane Francine, with a peak of 732,000 [barrels per day] of offshore Gulf of Mexico oil output shut-in [...], with the tail end of the impact reaching until Tues[day] Sept. 17, which should still show up in next week’s data," the Citi analysts said in a note to clients.

While the fall was much bigger than expectations for a decrease of 0.2 mb, it was also accompanied by builds in distillates and gasoline inventories. The increses in product inventories added to worries that U.S. fuel demand was cooling as the travel-heavy summer season wound to a close.

Source: Investing.com