In a Skandinaviska Enskilda Banken AB (SEB) report despatched to Rigzone on Wednesday by the SEB crew, Ole R. Hvalbye, a commodities analyst on the firm, highlighted that Brent “crashe[d]… to [a] 4 12 months low”.
“Since markets opened yesterday, Brent crude costs have tumbled one other $4 per barrel, falling from already depressed ranges to the present $60.9 per barrel – marking the bottom degree in over 4 years (since early February 2021),” Hvalbye famous within the report.
“Unsurprisingly, tariffs proceed to dominate headlines. The U.S. president’s ‘reciprocal’ tariffs on buying and selling companions, most notably a 104 % levy on Chinese language items, got here into impact at this time,” he added.
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“The more and more aggressive commerce agenda is sapping danger urge for food, with oil, broader commodities, and equities all taking a success,” Hvalbye identified.
Within the report, Hvalbye warned that, with no indicators of fast de-escalation, dangers stay firmly skewed to the draw back.
“Fears of weaker international oil demand, mixed with the OPEC+ determination to loosen output extra rapidly than anticipated, have created a poisonous cocktail fueling considerations of an oversupplied oil market,” he mentioned.
Hvalbye additionally highlighted within the report that West Texas Intermediate crude fell to $56.7 per barrel this morning. The analyst warned within the report that these are “ranges that threaten the profitability of a number of U.S. shale oil fields”.
“Based on BNEF, many producers require costs effectively above $50 per barrel to interrupt even,” he mentioned within the report.
“On this atmosphere, some shale gamers might quickly need to ignore the president’s acquainted name to ‘drill, child, drill’ as margins are severely compressed. If WTI stays within the low $50s, a slowdown in U.S. oil manufacturing additional out on the curve is more and more probably,” he added.
Hvalbye additionally highlighted within the report that American Petroleum Institute (API) knowledge launched final night time confirmed a a million barrel attract U.S. crude inventories, “contrasting with the Bloomberg consensus of a 1.7 million barrel construct”.
“Whereas this draw is considerably counter-seasonal, and would usually be a bullish sign, it’s presently being overshadowed by broader macro headwinds and fading market sensitivity to conventional knowledge factors,” he added.
Hvalbye went on to notice within the report that one potential bullish wildcard is the U.S. doubtlessly taking extra aggressive motion towards Iranian oil exports as costs drop.
“With geopolitical tensions within the Center East nonetheless simmering, any escalation or disruption in Iranian flows might rapidly drive oil costs considerably increased,” he mentioned.
“Nonetheless, the U.S. administration can be eager to maintain costs down for shoppers, which makes the timing and scale of any U.S. interference a fragile balancing act price having on the radar,” he added.
In a market evaluation despatched to Rigzone at this time, Dilin Wu, Analysis Strategist at Pepperstone, famous that WTI crude futures have fallen for seven consecutive buying and selling days, “dropping greater than 20 % from the April peak”.
“Recession fears are enjoying a key function within the oil selloff, particularly with the U.S. pushing forward with a 104 % tariff on Chinese language items and Beijing exhibiting no indicators of compromise,” Wu mentioned within the evaluation.
“That raises severe considerations about international demand,” Wu warned.
Within the evaluation, Wu said that, for China, the tariffs might considerably drag down exports and industrial output, which Wu identified are “two key engines of development”.
“We’re more likely to see softer oil demand consequently,” Wu mentioned.
“On the similar time, the 104 % tariff might push U.S. inflation again towards 4 %, even earlier than different new tariffs are factored in. That may increase the chances of a deeper recession within the U.S. as effectively,” Wu added.
Wu went on to state that OPEC+’s plan to ramp up manufacturing from Could has solely added to the stress.
“The 411,000 barrel per day hike is 3 times the scale of its earlier month-to-month targets and aligns with Trump’s push to decrease oil costs by way of fossil gas provide,” Wu mentioned within the evaluation.
“It’s shaping as much as be a battle for market share between OPEC+ and the U.S., no matter the place costs go,” Wu famous.
“That mentioned, brief positioning is already closely stretched, so the market might snap again on any indicators of de-escalation,” Wu continued.
“I will be watching U.S.-China talks carefully – any breakthrough might be a key catalyst. On the flip facet, if commerce tensions worsen, oil costs might have additional to fall,” the analysis strategist warned.
Rigzone has contacted the White Home, the State Council of the Folks’s Republic of China, and OPEC for touch upon SEB’s report and Wu’s evaluation. Rigzone has additionally contacted the API and the Iranian ministry of international affairs for touch upon SEB’s report. On the time of writing, not one of the above have responded to Rigzone.
To contact the creator, e-mail andreas.exarheas@rigzone.com
