After surging to four-month highs towards the end of last week, May Brent futures started the week in a similar vein, strengthening to briefly surpass the $86/bbl mark and record a near 5% increase week-on-week.
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A flurry of bullish headlines lent support to the contract. Notably, the IEA increased their global oil demand forecast by 110kbbls/d to 1.3mbbls/d for 2024, with one of the reasons being due to the ongoing Middle Eastern conflict, forcing tankers to rethink their passage through the Red Sea. In turn, more fuel is being utilised to carry out the diversion around the Cape of Good Hope. In addition, the EIA recorded a draw in US crude oil inventories after six consecutive builds, equating to -1.536mbbls. Moreover, total US stocks including SPR continued to decline, dipping to below the 1,580mbbls mark, residing only 2mbbls higher than the low point of 1578mbbls which was seen at the end of 2022.
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Looking ahead to this week, we forecast this support to continue with bullish headlines remaining apparent. The National Bureau of Statistics has announced that China’s processing power ramped up to record amounts in the opening two months of the year, refining 118.76m mt (+3% y-o-y) of crude over the course of January and February, in order to meet holiday demand. Moreover, Ukrainian drone attacks on Russian oil infrastructure still remain prominent. The Syzran and Slavyansk refineries were hit over the weekend, taking the total number of successfully attacked Russian refineries to double figures this year, in turn increasing the geopolitical risk premium.
This week is also significant, as many central bank policy meetings are scheduled to take place. Firstly on Mar 19, the market expects the Bank of Japan to end 8 years of negative rates, with its first rate hike in 17 years from -0.10% to +0.05%. The following day, the US Fed is expected to keep rates unchanged – but the market will be keen to monitor the minutes. A similar story is expected on Mar 21 in regards to the Bank of England, with the benchmark rate set to remain at 5.25% for a fifth consecutive meeting. Any deviation from the expected could lead to a shock in the market and will be important to keep a close eye on.
With this in mind, we hold a cautiously bullish view and forecast Brent prices to print between $87-88/bbl.