US crude futures traded 0.6% lower in morning trade on Monday as fears of slowing global growth, another potential US government shutdown and rising inventories at Cushing weighed on investor sentiment. Last week WTI futures fell 4.6% after recording their biggest January gain on record.
But Brent crude futures were trading flat, just above USD 62/bbl, on Monday and only slipped 1% last week, which we think reflects broader oil market fundamentals:
- Sanctions are weighing on supply. Venezuela’s oil minister Manuel Quevedo said on Monday that US sanctions are affecting the country’s oil production. Quevedo claimed that current production is running at 1.57mbpd, but official figures may be inflated by attempts to meet performance targets, in our view. Other estimates, such as Platt’s survey, put output at 1.16mbpd in January.
- OPEC+ production cuts are coming into effect. Saudi Arabia has said it will reduce its crude exports to 7.2mbpd in January and 7.1mbpd in February (versus 8.3mbpd in November), on production of around 10.2mbpd and 10.1mbpd, respectively – beyond the commitment it made to OPEC. Preliminary estimates of Saudi exports in January suggest the kingdom’s exports are in line with this figure.
- Oil demand remains healthy. The latest available US data shows a year-on-year increase of 2.9% to 20.9mbpd in November, the highest level ever for the month. Chinese crude imports exceeded 10mbpd for the first time in November and remained above that mark in December as well.We are monitoring OPEC+ compliance and the extent to which rising US production could offset lower OPEC+ supply. Overall, we expect the supply-demand balance to tighten compared to the second half of last year, and we forecast Brent prices to rise to USD 70–80/bbl over the next six months. Higher oil prices should support our preference for energy stocks in the US and the Eurozone.
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