Tomorrow is April and, no fooling, Ice Brent is on track to close out the first quarter of 2015 below where it came in.
Despite wrenching its way off the six-year lows posted in the middle of January, front-month Brent has closed above $60/bl just 16 times in the first three months of this year. Sure, it hasn’t been as low as some thought. There was a moment, when things looked really weak — remember that Bank of America Merrill Lynch forecast of $31/bl for Brent at the end of the first quarter? The bank later revised that, and is now sitting pretty with a 9 March forecast of $55/bl.
Prices found some support with the return of an old favourite, geopolitical risk, which has been conspicuous by its absence from the oil market ever since Libyan oil fields were given up as a lost cause. This could give some indication of where prices are likely to go in the next three months. A change at the top in the House of Saud has led to a more aggressive Saudi Arabian policy toward its restive neighbour, Yemen. When Saudis start shooting, the oil markets get worried. But the supply risks appear minimal, despite some hair-raising reports in the general press of imminent threats to Saudi oil production infrastructure.
Because, fundamentally, things have not changed much in the first three months of the year. Although Baker Hughes’ rig count data suddenly became a weekly must-read, there is still no clear timetable for a halt to US output growth. The amount of commercial crude being stockpiled in the country just kept hitting new highs in the first quarter, but the end of the refinery turnaround season in the second quarter should act against a continuation of this.
A slightly higher demand growth forecast from the IEA must be balanced against the strength of the dollar, which is making crude more expensive for everyone except Americans. The second quarter’s wild card, of course, is the possible return of Iranian crude. The deadline for an initial agreement is today. The absolute deadline is the end of June.
For more information, please contact OilBlog@argusmedia.com