Oil prices remain under pressure. ICE Brent continues to trade sub-$78/bbl, having traded to more than $82/bbl early last week. Hopes of a cease-fire between Israel and Hamas have weighed on oil, along with lingering demand concerns. While weaker Chinese demand has been well reported, refinery margins around the globe have been under pressure for much of August, suggesting that these demand concerns are not isolated to just China. The weakness in the oil market leaves OPEC+ in a difficult situation. Currently, they are set to start gradually unwinding supply cuts from October. However, the negative sentiment in the market may make the group think twice about sticking to this plan. Unfortunately for OPEC+, the global oil balance is set to be looser next year, suggesting that plans to ease cuts through 2025 may also have to be revisited.
API numbers overnight showed that US crude oil inventories increased by a marginal 347k barrels over the last week, while crude stocks at Cushing fell by 648k barrels. Inventory draws were also seen in products with gasoline and distillate stocks declining by 1.04m barrels and 2.25m barrels respectively. The more widely followed EIA report will be released later today and the market expects a decline of around 2.2m barrels in crude oil inventories.
European gas prices finally saw some weakness yesterday. TTF front-month futures settled more than 4.7% lower on the day, leaving prices a little under EUR38/MWh. European gas storage is now more than 90% full and while risks to Russian pipeline flows via Ukraine remain, up until now these flows have been unaffected. The longer that fighting goes on in the Kursk region without disrupting these flows, the more likely we will continue to see this risk premium in the market erode. However, with some heavy maintenance in Norway ahead of us, the market will likely remain sensitive to supply developments, particularly if any of this maintenance overruns.