Brent futures edge higher as API estimates US inventory draw

Front-month ICE Brent sees a slight increase of $0.37/bbl on the day, to $80.16/bbl at 09.00 GMT.

PHOTO: American flag on an oil refinery. Getty Images


Upward pressure:

Going by an American Petroleum Institute (API) estimate, US crude inventories were drawn by 3.07 million bbls in the week ended 16 December. Official Energy Information Administration (EIA) figures are due to come out at 15.30 GMT today.

In spite of a gloomy global outlook, investment banks remain sanguine about Brent rising next year. Bank of America expects Brent to average $100/bbl next year. Based on a tight supply and recovered demand, Morgan Stanley predicts a higher $110/bbl by mid-2023.

Reuters reports that Goldman Sachs expects Brent to average $98/bbl in 2023 due to a "market surplus." While this is lower than its earlier forecast of $110/bbl, it still represents an upside from current levels.

According to the World Bank blog, “Oil prices are forecast to average $92/bbl in 2023 and $80/bbl in 2024, down from a projected $100/bbl in 2022. However, prices will remain well above their recent five-year average of $60/bbl.”

Downward pressure:

China's business confidence is at its lowest level in almost a decade, according to a sales managers' survey by the global economic analyst firm World Economics. China's business confidence is at an all-time low in the service sector, while it is at a 3-year low in the manufacturing sector.

“The survey suggests strongly that the growth rate of the Chinese economy has slowed quite dramatically, and may be heading for recession in 2023,” warns World Economics. In the midst of warnings about a looming recession in the US and Europe, this warning could pose an even bigger downside risk for oil markets.

“Energy traders might be stuck in wait-and-see mode as there might not be a clear catalyst for the next major move with crude prices,” says Edward Moya, senior market analyst at OANDA. “The oil demand outlook will be key for how high crude prices can go and that might struggle for clarity as we see mixed signals with China's reopening,” he adds.

By Konica Bhatt

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