March 2, 2024

In the short term, increasing refinery runs should tighten direct crude balances.

That’s what analysts at Macquarie Bank Limited said in a report sent to Rigzone on Thursday, adding that they expect third quarter “tightness”.

“We are slightly bullish on direct crude balances as we expect an increase in refining runs of [around] 3.5 to 4.0 million barrels per day as units ramp post turnarounds, new kits increase throughput in the Middle East and China, and OPEC+ cuts begin,” the analysts stated in the report.

“In our view, the highest probability path for crude through the remainder of 2023 is to rally through 3Q before going lower in 4Q as U.S. and North Sea production growth accelerates, OPEC+ compliance wanes, and demand weakens due to recessionary pressures,” the analysts added.

The Macquarie Bank Limited representatives warned in the report that macro concerns continue to steer the price path of crude and “potentially limit upside from rising runs and the OPEC+ cuts”.

“In the U.S., jobless claims remain below expectations regardless of growing economic concerns, potentially signaling a need for a future hike,” they said in the report.

“The ECB is expected to continue its tightening cycle with another 25-bps rate hike in two weeks. In China, the recovery continues to underperform with the manufacturing PMI falling to 48.8, adding to global macro concerns regarding the potential impact of recessionary pressures on demand,” they added.

In a separate report sent to Rigzone on Tuesday, analysts at Macquarie Bank Limited noted that WTI lost managed money and other net length over the last week, decreasing by 12.3K.

“WTI continued its downward trajectory led by a decrease in long positioning with movement predominantly for the NYMEX contract, with a long/short ratio move 3.11 to 2.97,” the analysts stated in that report.

Brent built speculative net length over the past week, increasing by 12.2K, the Macquarie Bank Limited representatives highlighted in that report.

“Brent saw an increase in longs and a decrease in shorts with movement mainly for the ICE contract, with a long/short ratio move from 0.63 to 0.65,” the analysts said.

“The flow reversal could potentially be attributed to Saudi’s warning ahead of the OPEC+ meeting set for later this week,” they added.

The report outlined that WTI+Brent speculative net length fell by 0.1K contracts to 112.9K, with shorts growing by 2.3K while longs grew 2.3K. It also pointed out that managed money net positioning increased by 22.6K to 273K, with shorts decreasing by 10.4K contracts while longs increased 12.2K.

Brent MM + Other net short decreased by 12.2K contracts to -168.2K, with shorts decreasing by 0.7K while longs increased 11.5K, the report highlighted. Brent Managed Money net length increased by 26.6K contracts to 134.5K, with shorts decreasing by 12.6K while longs increased 14K, and Brent Other net short increased by 14.4K contracts to -302.7K, with shorts increasing by 11.9K while longs decreased 2.5K, the report revealed.

In another report sent to Rigzone on May 16, analysts at Macquarie Bank Limited said they remained slightly bullish on direct crude balances over the next few weeks but noted that they were still concerned about global petroleum balances.

“In our view, last week’s price pullback was driven by U.S. economic data and the debt ceiling situation,” the analysts stated in that report.

“We anticipate a rapid increase in refining runs to tighten direct crude balances, but the total petroleum balance could soften as demand growth slows, especially in large OECD countries,” they added.

The price of Brent dropped from a close of $77.44 per barrel on May 9 to a close of $74.17 per barrel on May 12. WTI dropped from a close of $73.71 per barrel to a close of $70.04 per barrel during the same timeframe. At the time of writing, the former is trading at $76.15 per barrel and the latter is trading at $71.92 per barrel.

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

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