May 6, 2023 [Financial Review] – Oil has slumped 14 per cent this year even after a decision by the Organisation of Petroleum Exporting Countries and its allies to cut production from this month.
The retreat has come despite signs of strength in the physical oil market, suggesting the sell-off may be excessive. In that vein, Shell chief executive officer Wael Sawan said this week that the market was actually “pretty tight.”
“While sentiment is negative at the moment, the market is in oversold territory and our balance sheet still shows that the market will be in deficit over the second half of the year, which should drive prices higher,” said Warren Patterson, head of commodities strategy for ING Groep.
Timespreads have narrowed off in recent sessions, signalling a less tight market. The prompt spread for global benchmark Brent – the gap between the two nearest contracts – was 18US¢ a barrel in backwardation. The figure was 37US¢ a barrel in backwardation a month ago.
In the Middle East, Iraq said it was yet to strike a deal with Ankara that would allow for the resumption of almost half a million barrels a day of Iraqi oil exports via Turkey. The stand-off between Baghdad and the Kurdistan Regional Government has halted shipments from the port of Ceyhan since late March.
“There are some attempts for oil prices to stabilise into today’s session following its heavy selloff,” said Yeap Jun Rong, market strategist for IG Asia, although he added that caution remained. “There have been some signs of dip-buying at the $70 level for Brent crude, so that may be a crucial level.”