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Oil prices are being torn between rising, conflict-related risks on the supply side and a slowing global economy, which will increase the downside pressures on demand.
That’s what analysts at BMI, a Fitch Solutions company, stated in a report sent to Rigzone on Friday, adding that trading has been volatile, “with global benchmark Brent crude closing above $90 per barrel and below $85 per barrel during the course of the week”.
“Our baseline scenario for the Israel-Hamas war sees fighting remain largely contained to the Gaza Strip, in which there is no producing oil infrastructure,” the analysts said in the report.
“Nevertheless, we could see oil supply disrupted should U.S. President Biden bow to mounting bipartisan pressure to choke off illicit exports of Iranian crude, in response to Tehran’s alleged involvement in the Hamas attack on October 7,” they added.
“There is also considerable uncertainty as to how the war will evolve and which other actors may ultimately be dragged into the fighting,” the analysts continued.
“Until some kind of a resolution is found, a risk premium will linger in the price, buoying the market and helping partially offset more bearish dynamics on the macro side,” they went on to state.
The analysts noted in the report that they had recently revised up their Brent crude oil forecast from $83 per barrel in 2023 and $84 per barrel in 2024 to $84 per barrel this year and $85 per barrel next year.
In an oil price outlook report sent to Rigzone at the start of October, analysts at BMI said Brent put in an extremely strong price performance over the third quarter, “rising by more than 27 percent to close above $95 per barrel on September 29”.
“The increase was supported by several factors, most notably the deepening supply curbs by OPEC+, which – when combined with seasonally stronger consumption – have driven the global oil market deep into deficit,” they added.
“However, we expect prices to soften in Q4, due to a partial easing of the deficit and a steepening slowdown of the global economy,” the analysts stated in that report.
European Natural Gas Outlook
In the report sent to Rigzone on Friday, BMI analysts said European natural gas prices remain elevated as supply concerns outweigh weak demand and historically high levels of natural gas in storage.
“Storage levels in Europe are just above 99 percent of full capacity and additional storage is being sought in war torn Ukraine to add to available supply for winter,” the analysts noted in the report.
“On the consumption side, a mild start to the heating season has further eroded upside pressures for the month ahead contracts, with seasonal storms expected to boost offshore wind generation in the coming week further limiting the need for natural gas in power in the short-term,” they added.
“Dutch TTF front month prices have declined by 5.5 percent from a week ago to EUR48/MWh, 24 percent higher than prices a month earlier. UK NBP front month prices have posted similar changes with declines of 3.5 percent from a week ago to GBp122/therm, higher by 26 percent higher than one month earlier,” they continued.
“With the start … [of] Europe’s heating season on November 1, expectations for a mild weather for the weeks ahead will likely limit any price upside barring significant supply disruptions in LNG imports or Norwegian upstream output,” the analysts went on to state.
Henry Hub Outlook
In another report sent to Rigzone on October 9, BMI analysts said they had become less bullish in their outlook for 2023 and 2024 Henry Hub natural gas prices “amid weakening outlook for the U.S. domestic demand”.
“We now expect Henry Hub front month prices to average at $2.9 per million British thermal units (MMBtu), down from $3.0/MMBtu expected in May,” they said in the report.
“This marks a decline of 56 percent compared to 2022 levels of $6.5/MMBtu and 21 percent decline from 2021 levels of $3.7/MMBtu. For 2024, we now expect prices to settle at $3.4/MMBtu, down from $3.6/MMBtu,” they added.
“The weaker than expected demand growth, coupled with sustained production growth, informs our less bullish Henry Hub price forecast for the short to medium term,” the BMI analysts continued.
EIA Price Projections
In its latest short term energy outlook (STEO), which was released on October 11, the U.S. Energy Information Administration (EIA) projected that the Brent spot price will average $84.09 per barrel this year and $94.91 per barrel next year.
In the STEO, the EIA projected that the Brent spot price will average $90.65 per barrel in the fourth quarter of this year, $94.64 per barrel in the first quarter of 2024, $96 per barrel in the second quarter of next year, $95 per barrel in the third quarter, and $94 per barrel in the fourth quarter.
The EIA’s October STEO forecast that the Henry Hub spot price will average $2.61 per MMBtu in 2023 and $3.23 per MMBtu in 2024. It sees the Henry Hub spot price averaging $3.03 per MMBtu in the fourth quarter of 2023, $3.31 per MMBtu in the first quarter of next year, $2.86 per MMBtu in the second quarter, $3.20 per MMBtu in the third quarter, and $3.55 per MMBtu in the fourth quarter.
To contact the author, email andreas.exarheas@rigzone.com
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