Brent crude prices have lost the positive momentum seen from Monday evening through midday yesterday. The price initially bottomed out at USD 65.7 per barrel on Monday afternoon, before climbing steadily by USD 3 to USD 68.7 on Wednesday morning. However, that upward momentum quickly reversed course. Brent tumbled nearly USD 3.4, hitting a weekly low of USD 65.3 per barrel before recovering some losses. As of this morning, it trades at USD 66.6 – a reflection of continued and substantial volatility.

Market fundamentals have largely remained in the background, with tariff rhetoric still dominating headlines. However, yesterday’s drop was clearly driven by the supply side of the equation, after reports emerged that several OPEC+ members are pushing for an accelerated oil output increase in June.

The timing of this move – amid global trade uncertainty and softening demand – may seem counterintuitive. But internal rifts within OPEC+ appear to be taking precedence. In May, Saudi Arabia already surprised the market with an output hike aimed at disciplining quota violators. That move failed to restrict Kazakhstan, the group’s largest overproducer, and has now triggered discussions of yet another sizeable production boost in June.

A later statement from Kazakhstan’s energy ministry, pledging renewed compliance, may have helped lift crude prices slightly this morning.

The next OPEC+ meeting is set for May 5, with the proposed June output hike expected to top the agenda. The group will likely choose between a scheduled, incremental increase of 138,000 barrels per day, or a more aggressive jump of 411,000 barrels per day – equivalent to ish three months’ worth of increases rolled into one. The latter scenario would put downward pressure on oil prices and highlight deepening tensions within OPEC+, while also exacerbating concerns in a market already clouded by weak demand expectations.

Although the final decision on volumes remains unclear, OPEC+ has demonstrated it still has pricing power, and that it can pull prices lower quickly if it chooses to do so.

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US DOE DATA

U.S. refinery activity picked up in the week ending April 18, with crude inputs rising by 326,000 barrels per day to a total of 15.9 million. Utilization rates also climbed to 88.1%. Gasoline output strengthened to 10.1 million barrels per day, while distillate fuel production edged lower to 4.6 million.

Crude imports declined by 412,000 barrels per day to 5.6 million last week. Over the past month, import volumes have averaged 6.1 million barrels per day – down 6.8% compared to the same period a year ago. Gasoline and distillate imports came in at 858,000 and 97,000 barrels per day, respectively.

Inventories were mixed. Crude oil inventories (excl. SPR) rose slightly by 0.2 million barrels to 443.1 million, still 5% below the five-year average. Gasoline inventories posted a sharp draw of 4.5 million barrels and are now 3% under seasonal norms. Diesel inventories dropped by 2.4 million barrels, leaving levels 13% below the five-year average. Propane inventories rose by 2.3 million but remained 7% under typical levels. Total commercial petroleum inventories saw a net decline of 0.7 million barrels on the week.

Product demand was generally stable. Total products supplied averaged 19.9 million barrels per day over the last four weeks, up 0.4% year-on-year. Gasoline demand slipped by 0.4%, while distillates and jet fuel rose sharply, by 12.8% and 13.8%, respectively.

Brent carried higher by relief rally across markets as Trump backs away from sacking Powel. Brent crude rose 1.8% ydy to USD 67.44/b with an intraday high of USD 68.04/b. The gain was driven by a relief rally across markets as it became clear that Trump would not try to force out Powel from his role as chair of the US Fed. US equities rallied more than 2.5% as a result and pulled oil along upwards in relief. The gains continue this morning both in equities and oil with the latter up 1.2% to USD 68.25/b.

Forward oil in euro looks very appealing for consumers. Even after recent oil price gains. A weaker USD and a lower oil price at the same time recently has strongly lifted the appeal for oil purchases by non-US denominated oil consumers. The euro has rallied against the USD. On Monday Brent closed at EUR 57.57/b while the 3yr forward Brent price closed at a nominal EUR 53.95/b when the forward fx rate is applied. But this is nominal three years forward basis. If we also assume that Eurozone inflation will average 2% pa. for the next three years, then the real forward euro price for oil is even lower. The price for Brent crude today is EUR 60.1/b for the front-month while the 36mth contract is EUR 55.1/b when the forward eurusd rate of 1.2 is applied. If we also assume a 2% annual inflation for three years then the real forward price is only EUR 51.9/b. Compare this to the average nominal price of Brent crude from 2015 to 2019, the shale oil boom-years, when Brent crude only averaged USD 58.5/b and EUR 51.3/b. This period was the tragic oil-years when US shale oil companies were chasing volumes rather than profits with many of them going bankrupt as a result. Even after the recent rally in Brent crude oil prices, the forward 36mth price in EUR is still relatively cheap in historical terms and especially so when the 36mth real forward price is taken into account.

The 36mth real forward price for Brent crude in EUR/b is almost down to the ”valley of death” period from 2015 to 2019 when Brent crude nominally averaged USD 58.5/b and EUR 51.3/b. That was the period when US shale oil producers aimed for volume over profits which led many of them to bankruptcy.

Brent crude ticks higher along with positive equity markets. Brent crude has been gradually ticking higher since its recent low close of USD 62.82/b on 8 April. Though 9 April was rather extreme with an intraday low of USD 58.4/b and a close the same day of USD 66.02/b. Brent is rising 1.4% this morning to USD 67.2/b along with higher equity markets in China and US equity futures (+1%). The daily fluctuations in Brent crude oil prices have been quite well aligned with fluctuations in equity prices which again are driven predominantly by the varying perceptions of how the US trade war with the world will progress and what the fallout will be.

Will Trump stay the course through economic pain or not? Will Donald Trump continue head-on, or will he pull back as pain emerges? It is clear that economic pain and damage will follow from what Donald Trump has done so far. That is already priced in. The big question though is whether he will stubbornly carry on or not. This looks like a ”game of chicken” where the question is who will blink first. Donald Trump or Xi Jinping? Will Donald Trump back off as US consumer-pain rockets and US economic activity falters or will he stay the course? Markets are highly conflicted on this as Trump has been extremely mercurial before and can suddenly change course. If he chooses to stay the course, without flinching, then obviously there is more downside to come. The current impression is that Trump is aiming for major changes and is willing to endure pain to achieve them.

Brent crude has taken direction from equity markets (here the US Russel 2000 index in orange) as it is a barometer of how bad the fallout from the tariffs will be on global growth and oil demand growth. The Russel 2000 is as of yesterday.

The Brent crude forward curve is pricing tightness and surplus at the same time. The Brent crude forward curve is currently pricing two things at the same time:

1) Supply/Demand is tight here and now (front-end backwardation)
2) But also, that surplus is coming (contango further out)

If the market is right, i.e. that surplus is coming, that Donald will continue head on with what he is doing, then the forward Brent curve will likely shift to full contango with the front-end of the Brent crude oil curve dipping into the 50ies. The big question is of course whether Donald Trump will carry head on without flinching or not. Staying the course through the coming economic pain.

Current Brent crude oil forward curve and how it could shift to full contango if the market shifts to surplus and stock building.