On September 18th, Standard Chartered Bank announced a larger scale short covering increase in oil prices. If OPEC+oil producing countries abide by their commitments, it is unlikely that there will be a supply surplus at least in the fourth quarter of 2024 and the first half of 2025.

In the past few weeks, the oil market has been hit by a top-down macroeconomic panic storm, leading to a decline in oil prices. Despite the current rebound in oil prices, commodity analysts at Standard Chartered Bank point out that considering the extreme nature of speculative positions, this is only a fairly limited rebound and deserves a larger scale short covering rebound.

Regarding the recent trend of oil prices, Standard Chartered Bank acknowledges that it is almost impossible to obtain clear short-term directional signals from fundamentals in such a chaotic market. However, Standard Chartered Bank has identified several key bullish drivers.

Firstly, it will take longer for Libyan oil to return to the market. Due to strong seasonal demand and supply disruptions in Libya and the Gulf of Mexico region, September is expected to be the most tense month of the year. Standard Chartered Bank predicts that Libyan oil may take longer than expected to return to the market.

According to expert reports, Libya's crude oil exports are 550000 barrels per day, which is about half of the pre crisis level of 1.2 million barrels per day. Standard Chartered Bank believes that the duration of the production reduction is much longer than the market's current expectations, indicating that the market is being too hasty in immediately resolving the pricing crisis that has not yet been resolved.

Secondly, if OPEC+oil producing countries keep their commitments, the possibility of oversupply is unlikely at least in the fourth quarter of 2024 and the first half of 2025.

Standard Chartered Bank stated that the compensatory production reduction plan of the three OPEC member countries will result in a total reduction of 370000 barrels per day in October 2024, and then between 162000 barrels per day and 206000 barrels per day between November 2024 and September 2025.

Standard Chartered Bank has calculated that if all commitments are complied with, adding the compensation plan to the recently announced production reduction targets due to delayed implementation of the cuts will result in a decrease of 530000 barrels per day in OPEC production in the fourth quarter of 2024, 540000 barrels per day in the first and second quarters of 2025, and 560000 barrels per day in the third quarter of 2025.

Another bullish catalyst is that the latest weekly data from the US Energy Information Administration (EIA) shows that crude oil inventories at the WTI pricing point in Cushing, Oklahoma, have decreased for the fifth consecutive week and the ninth week of decline in the past 10 weeks. Crude oil inventories decreased by 1.7 million barrels month on month, reaching a 10 month low of 24.69 million barrels, currently 11.25 million barrels lower than the five-year average level.

Brent crude oil daily chart