Oil Market Update – Reinforced Range

Oil prices have recently broken above the narrow range that has dominated trading through 2024. In the near-term, renewed risk to Russian product and crude supplies (the former due to Ukrainian drone attacks and the latter related to more stringent enforcement of the G7 price cap) has supported the rally. Looking ahead, we think recent gains can be sustained - the third quarter will likely see the intersection of three oil market tailwinds, with 1) fundamentals signaling the opportunity for a partial OPEC unwind (weakening the spare capacity ceiling which has capped prices for so long), 2) geopolitical risk factors escalating and 3) the Fed’s likely June cut underwriting positive macro currents as the global cutting cycle commences. That said, we do maintain our broader framework (outlined here ) of a relatively rangebound crude market through 2024, with residual OPEC spare capacity and consumer-side market management likely to limit upside through H2-24. Moreover, the capacity for speculative market participants to drive further price appreciation appears limited with current positioning stretched near post-covid highs when expressed in terms of total segment exposure. We maintain our relatively bullish price targets outlined in our Nov-23 note , expecting Brent to average $87/bbl across Q3-24 and $84.8/bbl for 2024. We see Brent averaging $82.8/bbl in 2025.