Macquarie Group Reveals Oil Market Outlook

In a new report sent to Rigzone, Macquarie strategists Vikas Dwivedi and Walt Chancellor announced that they remain “short-term bullish but structurally bearish” on the oil market after last weekend’s OPEC+ meeting.

“We continue to believe the large, 3.5 to 4.0 million barrel per day increase in refinery runs, extra-seasonal ME power burn, and OPEC+ cuts will tighten direct crude balances through 3Q23,” the analysts stated in the report.

“From there, we expect a correction in 4Q23 and 2024 due to sweet production growth from the U.S. and N. Sea, OPEC+ non-compliance, and slowing demand due to recessionary effects,” they added.

“In our view, the structural challenge for the oil market is the ease of oil production growth, a feature we believe will persist for several years,” the analysts continued.

In the report, the Macquarie strategists outlined that, in the U.S., refiners need heavier, sour barrels “to balance the crude slate” as much of the domestic supply is light and sweet.

“Therefore, the U.S. relies on heavy, sour crude imports from the Middle East, Mexico, and South America to maximize the utilization of the refineries,” the analysts said.

“The extendable and reviewable one million barrel per day voluntary cut by Saudi for July has the potential to shrink … sour discounts and compress … refinery margins further,” they added.

The strategists also highlighted in the report that macro concerns associated with the impact of recessionary pressures on demand are potentially limiting the ability for OPEC+ intervention to support price.

“Demand is a key part of the balance that has the most uncertainty, with the market focusing on Chinese demand growth,” the analysts said in the report.

“Currently, the IEA is attributing around 60 percent of 2023 global demand growth to China; in contrast we estimate China will contribute [around] 35 percent,” they added.

WTI, Brent Net Length

WTI+Brent speculative net length fell by 37.3K contracts to 75.6K, with shorts growing by 37.2K while longs fell 0K, the Macquarie strategists pointed out in the report.

Managed Money net positioning decreased by 30.4K to 243K, with shorts increasing by 22.5K contracts while longs decreased 7.9K, and Brent MM + Other net short decreased by 10.1K contracts to -158.1 K, with shorts decreasing by 5.9K while longs increased 4.3K, the analysts revealed.

Brent Managed Money net length grew by 20K contracts to 154.5K, with shorts falling by 12K while longs grew 7.9K, and Brent Other net short grew by 9.8K contracts to -312.6K, with shorts growing by 6.2K while longs fell 3.7K, the analysts highlighted.

In another report sent to Rigzone this week, analysts at Standard Chartered noted that hedge funds and Commodity Trading Advisors moved further to the short side in crude oil in the build up to the June 4 OPEC+ meeting, “moving even beyond the extreme reached two weeks ago”.

“Our crude oil money-manager positioning index fell -10.9 week on week to -100.0; the -100 reading indicates that the money-manager net long as a share of open interest is at its lowest for at least five years (it is in fact at its lowest since 2009),” the Standard Chartered analysts stated in the report.

“Total money-manager shorts across the four main Brent and WTI futures contracts rose by 20.4 million barrels week on week to 221.4 million barrels, while longs fell by 12.9 million barrels to 424.8 million barrels,” they added.

“Our gasoil positioning index fell 10.9 week on week to -84.9, while gasoline remains the only energy contract with a positive positioning index with the index rising 5.6 week on week to +15.5,” the analysts went on to state.

To contact the author, email andreas.exarheas@rigzone.com