The oil market is not as tight as the Wall Street consensus view, and with the current slowdown in demand growth, the fundamentals justify more like $65 a barrel Brent rather than $75, Standard Chartered said in a research note dated Tuesday.
At present, the oil market is in a mild surplus. The bank's commodity analysts said that it will continue to be in surplus in September.
Standard Chartered's view echoes last week's warning from the International Energy Agency (IEA) that new mobility restrictions in Asia to fight the Delta variant are set to slow global oil demand growth in the second half of 2021.
"The balances appear to justify USD 65/bbl or lower more than USD 75/bbl or higher in our view, particularly when a significant amount of money has already entered the market in the Wall Street-generated belief (mistaken according to our analysis) that the balances are much tighter and justify USD 80-100/bbl," Standard Chartered's analysts wrote.
The current balance of supply and demand implies that "the consensus Wall Street view of a very tight market for the rest of 2021 was incorrect and that the period of significant excess demand was over."
The bank estimates that the market will see small surpluses in August and September, followed by small deficits in October and November. Moreover, global oil demand will not regain its level from July 2021 until November.
"In our view Q4 oil market balances are not tight, and the 2022 balance is now oversupplied to an extent that will likely cause OPEC+ to pause its schedule of monthly supply increases early in the new year," Standard Chartered said.
OPEC+ is set to meet on September 1 for the regular monthly meeting.
"The current price cycle is one which we would describe as a 'skimming stones' period of trading," says the bank, adding: "Like skimming stones across water, each bounce is less high than the previous and the length between bounces is diminishing."
By Tsvetana Paraskova for Oilprice.com
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