Keep buying Brent

23 October 2023 193
Keep buying Brent

Last week, the U.S. Energy Information Administration released its regular monthly report on the current state and prospects of the energy market.

The main points of the report that can be emphasized are outlined further below:

Expectations for household energy use and expenditures for the upcoming 2023–2024 winter season are that the ones primarily using natural gas, electricity or propane for heating will spend less this winter compared to the last one.

Households using heating oil are expected to spend a bit more next year than they did last year.

According to the Weekly Petroleum Status Report (WPSR), gasoline consumption in the U.S., measured as product supplied, was below the levels seen in 2022, when demand declined after months of high summer gasoline prices and rising inflation.

As of October 13, the 4-week moving average of gasoline consumption was 8.5 million barrels per day (bpd), which is 5% lower than the five-year average and 8% below consumption in 2019 before COVID.

Some factors that may contribute to lower gasoline demand compared to previous years include higher prices and reduced discretionary spending due to persistently high inflation and improved vehicle fuel efficiency. According to WPSR, this year's refinery volumes were above average in September and near average in October.

Nevertheless, these factors are estimated as seasonal deviations and during the following periods gasoline pricing will return to its basic pattern and will follow the oil market in general.

As for the oil production outlook, the OPEC+ members are expected to reduce crude oil production by 0.3 million bpd in 2024 compared to this year.

Global oil inventories are forecast to decline by 0.2 million bpd in the second half of 2023 (2H23) as Saudi Arabia's voluntary production cuts and lower OPEC+ output targets keep global oil production below global consumption.

As a result, the crude oil price is expected to rise, with the Brent spot price jumping to an average of $95 per barrel in 2024.

Jet fuel consumption is forecast to increase by 6% in 2024 from 2023. This growth mainly reflects strong consumer demand for air transportation, which has returned to pre-pandemic levels. Despite higher travel demand compared to pre-pandemic levels, jet fuel consumption is expected to be slightly lower for the same number of passengers because of the industry's shift to larger planes.

The final recommendation is to keep buying Brent crude oil as energy prices are still under upward pressure.

Profit or loss should be taken at the end of the next year’s first quarter.

This content is for informational purposes only and is not intended to be investing advice.

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