Page 27 - Policy Economic Report - June 2024

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

Oil Market

Crude oil price – Monthly Review

Brent crude futures continued to slide in May and early June, as flagging oil demand growth and inventory
builds pointed to a comfortably supplied market. Brent futures fell by $6/bbl in May, before tumbling
further in early June after the OPEC+ alliance announced plans to gradually unwind last year’s extra
voluntary output cuts starting in 4Q24. Traders’ initial response was overwhelmingly bearish, with prices
falling to a low of around $77.50/bbl., but OPEC+ officials quickly reiterated that a rollback of output
reductions will be contingent on market conditions. Brent rebounded to $81.50/bbl, still about $11/bbl
below early April’s 2024 highs.

In May, crude spot prices averaged lower, reversing all previous gains, mainly due to heavy selling in the
oil futures market and changes in the market's perception of short-term oil market outlooks. The decline
in prices was more pronounced in the light sweet Brent benchmark, as the selloff from speculators was
concentrated in ICE Brent futures and options contracts. Lower gasoline and diesel crack spreads in major
trading hubs added downward pressure to light sweet crudes. This largely offset a draw in US crude stocks
and higher global oil refinery intakes. High crude supply availability in Northwest Europe and supplies from
the US Gulf Coast (USGC), weighed on the value of crude differentials in the Atlantic Basin and pushed the
value of the North Sea Dated benchmark lower.

Hedge funds and other money managers closed a large volume of bullish futures and options positions in
the ICE Brent futures market, while sharply raising short positions to their highest since November 2020.
This fuelled volatility and accelerated the decline in oil futures prices. Combined futures and options net
long positions in ICE Brent and NYMEX WTI dropped to their lowest level since last January. Between late
April and the week of 28 May, hedge funds and other money managers sold an equivalent of 144 mb of
oil in Brent and WTI futures and options positions.

The OPEC Reference Basket (ORB) value averaged $5.53, or 6.2%, lower, m-o-m, to stand at $83.59/b,
with all ORB component values falling alongside their respective crude oil benchmarks.

The premium of light sweet crude over medium sour crude continued to narrow in May, a trend observed
across all major regions for several consecutive months. High availability of light sweet crude, especially
from increased US crude exports, and a reduction in gasoline and diesel crack spreads in all refining hubs,
negatively impacted the value of light sweet crude, while medium and heavy sour crude values
experienced comparatively a less significant decline.

Brent crude ranged an average to $82.75 a barrel and WTI ranged to $78.52 per barrel in the month of
June 2024.

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