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Insight Weekly Market Report Market Report - 26.11.2024.

Market Report Week 48 - 26.11.2024

Other insights Nov. 26, 2024
Market Report Week 48 - 26.11.2024 Download the full report

Geopolitical risks are on the rise


Last week, Russia fired an intercontinental ballistic missile (ICBM) at Ukraine. This missile, which has a range of up to 6,000 km, is capable of carrying nuclear warheads.


It remains unclear what was hit and the extent of the damage caused. However, the most significant aspect is the signal, which indicates a marked escalation from the Russian side. Putin continued the escalation on Thursday night, acknowledging the use of a "new" ballistic missile on Ukraine and stating that with Ukraine's use of Western weapons inside Russia, NATO is now directly involved in the war, and the conflict has become global.


Last week, we also saw a step up in hybrid warfare. A Chinese vessel with one or more Russian crew members, for example, is under suspicion of deliberately capping data cables in the  Baltic Sea.  
In today's issue, we will give a brief overview of the impact on oil/oil products of the heightened geopolitical risks related to Russia. We also discuss the upcoming OPEC+ meeting on December 1 and our oil price outlook. 

Bunker Port Brief

Singapore

The Asian LSFO market is expected to be under pressure over Nov. 25-29 due to ample stockpiles and lacklustre demand in the downstream spot market. This could weigh on prices, with suppliers eager to draw down inventories.
The Asian HSFO market is anticipating sufficient cargo availability in the near term as weaker import activity by China's independent refineries may potentially drive down upstream valuations. The market is expecting surplus volumes in the Middle East and Venezuela to find homes in Singapore through the first half of December, in addition to the steady stream of Russian HSFO flows.
The Asian LSMGO market is likely to move sideways over the week as fundamentals hold steady, with expectations of heavier supply in December due to swing barrels from India and the Middle East, while China's export tax rebate reduction will likely have little impact.

ARA

HSFO - the first of several IFo cargoes arrived on the 20th Nov, and premiums and avails easing as a result. LSMGO - avails improved over the past month. The end of October situation was terrible locally for product avails and loading delays,  now the market is very well supplied and discounts are some 20-25 USD lower. 

Fujairah

Stocks of heavy residues saw a build of 450,000 barrels, or a rise of 5.2% on the week to 9.147 million barrels. 
Fujairah is continuing to see strong demand for HSFO as term premiums for the fuel were easing following the conclusion of the Middle East's summer power season and easing geopolitical tensions. The lead time for inq is 7-10 days with avails tight before this. 
VLSFO remains balanced with some prompt barge availability. 

Houston

Some barge congestion starting to build around HSFO and VLSFO due to an uptick in demand and some delays at loading terminals.  EDDS is pushing into the first week of December. 
Fog season -   US Gulf is entering Fog season which will run thought the winter and early spring. Can expect intermittent channel closures and operational delays over the next several months due to periods of dense fog affecting vessel and barge movements. 

New York 

Demand from liner segment remains heavy for HSFO RMK. .5 and MGO demand is a bit muted on the spot. . 

For port availability and demand, download the full report here.

1. Geopolitical Impact oil: Russian production already capped

The oil price has seen support over this week, and Brent front-month was close to USD 75.0 on Friday. The price is slightly lower today at USD 73.5. 
However, it is important to remember that the oil market is "pragmatic", and there is no sign that the US under Trump will push for more sanctions on Russian oil exports. Moreover, Russian oil exports are already restricted by OPEC+ membership.
The distillate market situation differs slightly. Ukraine has targeted Russian refineries before and might do so again due to Russia's recent escalation. However, such attacks have ceased recently, as Ukraine has focused on military targets.
New attacks on oil refineries could particularly impact the diesel and therefore also distillate markets like Gas oil and Marine Gas Oil. Russia remains an exporter of diesel to the global market. Recently, we have observed a slight tendency towards higher gasoil crack spreads, though nothing significant. Similarly, the so-called diesel differential increased in November. 
The distillate market is also affected by demand from European power plants that rely on fossil fuels during periods of low wind and solar output (Dunkelflaute) or cold weather. Rising gas prices may render fuel and heating oil more attractive for power and heat generation.

2.    OPEC meeting: We believe in a new delay to the plans of higher production

We do not believe OPEC+ will add more oil to the market in 2025. Given the outlook for non-OPEC+ supply and global demand, there is no room for more oil. This means we expect OPEC+ to stick to a "price strategy" that targets oil prices in the USD 70-80 range next year. We also expect OPEC+ to focus on quota compliance next year.


Hence, we expect OPEC+ to announce a new delay in the plans to add more oil to the market at the OPEC+ meeting on December 1. This will be the third delay. The first two delays were for one month—this time, we expect the cartel to announce a three-month delay. There is no sense in delaying for just one month again. There is nothing that indicates a change in fundamentals in just one month. 


If correct, we should expect a slight uptick in the oil price. However, we expect a more significant market reaction if OPEC+ confirms the planned production increase. In this scenario, we expect a move below USD 70 for Brent. 

3. Oil price outlook

We still believe that global demand will surprise on the upside next year, rising between 1.25 and 1.5 mb/d based on lower interest and inflation globally in a situation where wage growth remains healthy, paving the way for a jump in real income growth. 
Stimuli to the US and Chinese should also boost demand. Finally, we believe the market is too optimistic about non-OPEC supply growth. Trump may be inclined to boost US oil production, but it might take longer than the market assumes.
However, the geopolitical premium might disappear again, and with an expected USD appreciation and new tariffs, there are undoubtedly also headwinds in oil prices in 2025. Hence, we see Brent averaging USD 76 in 2025. Risks are skewed to the downside.

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