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Oil prices to soften again in 4Q 2023

Oil&Gas Materials 3 October 2023 16:23 (UTC +04:00)
Laman Zeynalova
Laman Zeynalova
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BAKU, Azerbaijan, October 3. Oil prices are expected to soften again in the fourth quarter of 2023, Trend reports with reference to BMI, Fitch Solutions company.

In its latest analysis, BMI made upward revisions to our Brent crude oil price forecasts. While initially predicting an annual average of $80 per barrel for 2023 and $83 per barrel for 2024, the company now anticipates prices to reach $83 per barrel for 2023 and $84 per barrel for 2024. This adjustment comes after an impressive performance by Brent crude during the third quarter, where it surged by over 27 percent, ultimately closing above $95 per barrel on September 29.

Several factors contributed to this remarkable price surge, with the most significant being the deepening supply cuts enforced by OPEC+. These supply restrictions, coupled with seasonally heightened consumption, pushed the global oil market into a significant deficit. However, BMI foresees a change in the trend as we move into the fourth quarter. This shift is expected due to a partial easing of the supply deficit and a noticeable slowdown in the global economy.

The tightening of the physical oil market has had a notable impact on market sentiment. This is reflected in the increasingly bullish positioning of managed money in Brent. The Brent dated-to-frontline swap, a measure of the difference between physically and financially settled contracts, has shifted from a discount of $0.3 per barrel at the end of the second quarter to a premium of approximately $1.5 per barrel at its peak in September. With this stronger foundational support, speculative investors have become more open to positive market developments while tending to overlook bearish data and news.

Additionally, the futures curve signals expectations of a tighter market in the medium term. The term structure has notably shifted in the past month, with a significant steepening of backwardation at the front end of the curve. The company’s own global supply and demand projections indicate a relatively balanced market for the upcoming year. However, it is crucial to acknowledge the substantial risks to this outlook, particularly in light of the anticipated global economic slowdown.

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