Oil futures: Crude extends gains, post-OPEC+ losses fully restored

Quantum Commodity Intelligence – Crude oil futures Tuesday were edging higher as markets extended the firm gains made since the middle of last week, rebounding from four-month lows which came after the OPEC+ meeting.

Front-month Aug24 ICE Brent futures were trading at $81.95/b (1955 GMT), compared to Monday's settle of $81.63/b, as the rally appeared to be running out of steam later in the session.

At the same time Jul24 NYMEX WTI was trading at $77.98/b versus Monday's settle of $77.74/b.

Oil prices are now comfortably back above levels just prior to the 2 June OPEC+ meeting, having tumbled by up to 6% after the producer group announced plans to start unwinding cuts from October.

On review, analysts see last week's selloff as overdone, with the extension of all three phases of OPEC+ cuts pushed back until at least the end of Q3, keeping the supply versus demand picture in deficit for this year, while lower Q2 prices have spurred additional buying.

"Physical demand for oil, including from China and the US SPR, tends to rise when prices fall," said Goldman Sachs in a report, noting that China typically bolsters restocking when Brent prices drop below around $85/b.

The bank also said that higher JKM import prices would likely shift some demand away from natural gas into diesel, including in the trucking market.

The US has tendered for an additional 6 million barrels of crude for SPR restocking. This comes after Energy Secretary Jennifer Granholm said last week that the government could accelerate its restocking program with maintenance at key storage facilities set to be completed this year.

Meanwhile, OPEC maintained its upbeat outlook on 2024 demand, seeing growth at 2.25 million bpd for this year and another 1.85 million growth in 2025, supported by firm global economic growth.

Rates

However, the firmer dollar since last Friday's US jobs data has capped further upside, while the US Federal Reserve is widely expected to keep interest rates unchanged at 5.25-5.5% on Wednesday and likely indicate that September is the earliest opportunity to consider a cut seriously.

"The upside surprise in the US Nonfarm Payrolls has shifted market expectations, now predicting only one rate cut in December, a significant change from the seven cuts anticipated at the beginning of the year and the Fed's forecast of three cuts," said Peter Garnry of Saxo.

"This shift suggests the Fed is becoming more cautious and delaying the rate cut cycle due to inaccuracies in its own models."

Meanwhile, backwardation in the Brent futures market has widened to more than $0.40/b this week for the Aug24/Sep24 spread, having collapsed to almost zero this time last week.

However, the North Sea market was still oversupplied despite trader Gunvor accumulating more than 15 cargoes via the forward chains this month. The flagship Forties grade was last offered at $0.80/b over Dated Brent swaps on a CIF Rotterdam basis, which equates to around Dated minus $0.60/b FOB when adjusted for freight.

Glencore has won a term tender to supply crude oil to Prax's 113,000 bpd Lindsey oil refinery on the UK east coast, replacing rival Trafigura.