Energy

ICE Brent managed to edge higher yesterday, settling above US$120/bbl. Underlying fundamentals remain constructive for the market, particularly as we enter the stronger demand period over the summer, although API numbers released overnight show inventory builds for both US crude and products. Crude oil inventories increased by 1.85MMbbls over the week, whilst gasoline and distillate stocks increased by 1.82MMbbls and 3.38MMbbls respectively.

These product builds should offer some relief to the market in the very short term, given concerns over tightening product markets. The more widely followed  EIA report will be released later today, and similar numbers to the API would mean bigger stock builds than the market was expecting.

The EIA released its monthly Short Term Energy Outlook yesterday, in which US crude oil production for 2022 is forecast to grow by 740Mbbls/d YoY to average 11.92MMbbls/d, marginally higher than forecasts from last month. However, for 2023, the EIA made larger revisions, expecting output to grow by 1.05MMbbls/d YoY to average 12.97MMbbls/d, up from a previous forecast of 12.85MMbbls/d.

Looking at the EIA’s global balance, they expect Russian liquids production in 2022 to fall by 3.3% YoY to 10.42MMbbls/d. A more meaningful decline is expected in 2023 given the EU oil ban, with Russian liquids output expected to fall by 8.6% YoY to 9.52MMbbls/d. Although, interestingly these production numbers are somewhat larger than the EIA was forecasting last month. This could reflect the fact that the EU ban only applies to seaborne oil, rather than all oil as initially proposed.