Brent crude prices have risen by USD 2.8 per barrel as of yesterday and this morning, currently trading at USD 71.8 per barrel. This is despite U.S. inventory data showing a notable build in both commercial crude and product inventories, typically a bearish signal for the market (details below).

The recent price recovery is unlikely driven by these inventory figures. Instead, it appears to be a response to OPEC+ signaling its intention to intervene if Brent crude prices fall below USD 75 per barrel (take time for the market to fully react). This was made clear last week when the group adjusted its production plans, delaying increases. Such action offers substantial downside protection, limiting further declines.

Over the past few weeks, Brent crude experienced a sharp sell-off, hitting a low of USD 67.7 per barrel on Tuesday. This decline was largely driven by demand concerns stemming from weak economic data in both China and the U.S.

While macroeconomic data for both nations remains sluggish, U.S. consumer spending has held up. For instance, the U.S. ISM non-manufacturing PMI for August showed the services sector expanding for a second consecutive month, recording 51.5 versus the expected 51.3. Although the U.S. economy is clearly decelerating – contributing to bearish market sentiment – the most recent jobs report saw the unemployment rate fall back to 4.2%. As a result, the anticipated Federal Reserve rate cut next week is expected to be 25 basis points, rather than the widely discussed 50 basis points.

Fundamental concerns persist. A ”soft landing” for the U.S. economy seems increasingly plausible, and China’s oil imports appear to be rising as current price levels attract more buying interest. This is reflected in higher VLCC freight rates from the Middle East to China.

As such, there are supporting factors that may limit further price declines, with the potential for prices to recover from here. For more details, read yesterday’s crude oil comment.

U.S. commercial crude oil inventories (excluding the Strategic Petroleum Reserve) increased by 0.8 million barrels last week, bringing the total to 419.1 million barrels, which is 4% below the five-year average for this time of year. This build occurred despite U.S. refineries processing 16.8 million barrels per day (bpd), a decrease of 141,000 bpd from the prior week. Refineries were operating at 92.8% capacity.

In addition, U.S. crude oil imports averaged 6.9 million bpd, an increase of 1.1 million bpd compared to the previous week. However, over the last four weeks, imports averaged 6.5 million bpd, down 7.3% from the same period last year.

For refined products, motor gasoline inventories increased by 2.3 million barrels, although they remain 1% below the five-year average. Distillate (diesel) fuel inventories also rose by 2.3 million barrels but are still 8% below the five-year average.

Overall, total commercial petroleum inventories increased by 9.0 million barrels last week.

On the demand side, total products supplied over the last four weeks averaged 20.5 million bpd, representing a 2.2% decrease compared to the same period last year. Motor gasoline product supplied averaged 9.0 million bpd, up 0.9% year-over-year, while distillate fuel product supplied averaged 3.7 million bpd, down 0.2%. Jet fuel demand fell by 2.3% compared to the same period last year.

Despite the increase in U.S. inventories, overall levels remain relatively low, which could become a key factor in shifting market sentiment and driving prices higher.

Rebound after a very bearish day as US inventories declines further. Last week Brent crude broke down below USD 75/b. And it didn’t take long before the heralded production increase was shifted out two months to instead start in December. This however, was far from enough to halt the oil price sell-off where Brent crude traded down to USD 68.68/b (-4.4%) before closing the day at USD 69.19/b (-3.7%). The market was gripped with bearish demand fears and there were hardly any bullish voices to be heard. This morning Brent is rebounding 1.5% to USD 70.25/b. US inventories likely continued to decline last week by around 3 mb according to indics by API in an extension of steady declines since mid-June. Russia and other OPEC+ members complied better to quota targets in August.

A (hybrid) market share war. A fight over market share between OPEC+ and non-OPEC+ is indeed a key element of the latest turmoil in the oil market. And not the least unclarity over how exactly the group is going to execute its long heralded production increase. But the group partially showed its cards last week when it modified its plan to hike production almost immediately after Brent crude fell below USD 75/b last week.

This is very different from 2014/15. OPEC+ is clearly set to return volumes to the market. But this looks very different from 2014/15 when OPEC simply flooded the market with oil and crashed the price. This time around the group is behaving more like a central bank. In June they laid out and communicated to the market their plan to return 2.2 m b/d of voluntary cuts to the market. Gradually lifting production from Q4-2024 to Q3-2025. They communicated this long time in advance of when the actual production increase is supposed to take place. At first it shocked the market and Saudi Arabia was forced to soften the message with ifs and buts. Saying that the plan will be adaptable to market circumstances once we actually get to Q4-2024. Though without being too specific about it. And now we are very, very close to Q4. The market is hit by China weakness as well as a bit of unclarity over the ”new” strategy of OPEC+. The oil price tanks.

They will lift production by 2.2 mb/d but it will take longer time. We do believe that OPEC+ will indeed lift production by 2.2 m b/d as stated but that they will spend more time doing it and also that they will have to accept a somewhat lower price to get it done. If nothing else they need to lift production back towards more normal levels in order to be in a position to cut again when the next crisis occur. Just like central banks needs to lift interest rates in order to be positioned to cut the yet again.

Not all bearish. Here are some bullish elements. Amid all the bearish concerns which is gripping the market currently here is a list of supportive elements.

1) OPEC+ modified its production increase plan the moment Brent fell below USD 75/b. More modifications to come if needed in our view.

2) Better compliance by OPEC+ members in August with Russia now very close to production quota-target.

3) US oil inventories have fallen steadily and counter seasonally since mid-June and likely fell another 3 mb last week (crude and products) according to indic. by API. Global floating crude oil stocks have declined by close to 50 mb since a peak in mid-June.

4) VLCC freight rates from the Middle East to China are ticking higher. Probably a sign of increased appetite for oil imports.

5) US EIA yesterday reduced its US crude oil production forecast marginally lower along with a slightly lower price forecast.

Deep rooted market concerns at the moment are about fear for coming surplus with predictions that the market will flip to surplus some time in November and December. Thus no surplus as of yet. Though Chinese weakness is apparent to be seen.

An oil price of USD 75/b in 2025 will likely give OPEC+ what it wants. A somewhat lower oil price (SEB 2024 Brent average forecast is USD 75/b) will be very positive for the global economy, lower inflation, lower interest rates, higher oil demand growth down the road and also further dampening of US shale oil production growth. A WTI crude oil price of around USD 70/b will likely also stimulated the US government to buy more oil to refill its Strategic Petroleum Reserves (SPR) which were heavily depleted in 2022/23. All good things for OPEC+ and its ability to place 2.2 mb/d of oil back into the market.

Brent crude stabilized around USD 73 per barrel yesterday and this morning, following U.S. inventory data that showed significant draws for yet another week, along with OPEC’s decision to delay output hikes for two months. However, the shift in OPEC+ strategy wasn’t enough to offset the sharp losses in crude prices witnessed over the past few weeks, with Brent falling by USD 8.5 per barrel (10.3%) since late August. This recent decline has largely been driven by concerns over fragile demand.

Looking ahead, despite the bullish U.S. inventory report (detailed below), the market’s focus remains on the anticipated weakness in crude and product demand, which is overshadowing positive signals. Deep concerns persist, especially regarding China, which typically accounts for roughly 40% of annual global demand growth.

Moreover, the current change in OPEC+ strategy does not guarantee stability moving forward. There is still uncertainty around how OPEC+ will proceed: whether it will continue to delay production or release more volumes to the market. Historically, OPEC+ has maintained a ”price floor” at USD 80+ per barrel, stepping in to support prices. However, this floor may now be shifting. Lastly, the Russia-Ukraine diesel shock has mostly dissipated, leading to a decline in the diesel crack and global diesel prices, which in turn is reducing stress on crude markets.

U.S. crude oil refinery inputs averaged 16.9 million barrels per day last week, reflecting a slight increase from the prior week, with refineries operating at 93.3% capacity. U.S. commercial crude inventories dropped by 6.9 million barrels, bringing the total to 418.3 million barrels—about 5% below the five-year average for this time of year, signaling a clear tightness in supply.

Since June, U.S. crude inventories have consistently shown substantial draws (see page 12), underscoring strong implied demand (see page 15) and slower-than-expected production growth. U.S. crude production appears to have plateaued, and its trajectory for the rest of the year will be crucial to monitor.

Gasoline inventories rose by 0.8 million barrels but remained 2% below the five-year average, while distillate (diesel) inventories fell by 0.4 million barrels, standing a significant 10% below their historical average.

On the import side, U.S. crude oil imports averaged 5.8 million barrels per day last week, down by 768,000 barrels from the previous week, further contributing to the supply draw. With China’s weakening economy now a focal point for commodities markets, pushing industrial commodities lower, the energy sector remains vulnerable but resilient for now.

Gasoline production reached 9.7 million barrels per day, and diesel production hit 5.2 million barrels per day, both reflecting steady output. Additionally, overall petroleum inventories fell by 8.0 million barrels (see page 14).

Earlier this week, we released our updated Oil and Gas Price Outlook, which provides detailed projections and insights into market trends through 2027. In the report, we forecast lower oil prices in 2025 as the market shifts to surplus, driven by tepid demand growth – particularly from China – and rising production both within and outside of OPEC+. We expect OPEC+ to tolerate some price declines in exchange for higher volumes, which could lead to increased price volatility. Yet, a market deficit is likely to return in 2026, setting the stage for a price rebound. In the natural gas market, tight LNG supply conditions are expected to sustain upward price pressure through 2024 and 2025, despite high EU inventories, with relief coming in late 2026 as new production capacity becomes available.