KBC oil market outlook

KBC has reported that Brent crude prices increased for four consecutive days, with a surge of almost 20% to settle at US$58/bbl in early February. The rally commenced when oil service company Baker Hughes said the number of US oil drilling rigs had its biggest weekly design since 2987, and fell to a three year low. The market, according to KBC, was betting on the fact that the dramatic drop in US drilling rigs and planned capital spending cuts as announced by oil companies this year will put an early dent in oil production.

Oil bulls, KBC has said, take it as s sign that price may have bottomed out, however others are not so optimistic, citing stock builds of crude in the US, which have grown to their highest levels since the 1930s as evidence. KBC has said that it expects oil prices to remain structurally weak. As seasonal refining turnarounds cool demand, price are likely to weaken before rebounding on crude unit restarts ahead of the normal northern hemisphere spring demand rally. Price risk, it has been reported, will remain on the downside, and KBC expect surplus crude and products to continue moving into storage and the contango to deepen. Meantime, refining margins improved in all the three main regions last month, compared with December levels, mainly as crude prices continued their downward slump.

Edited from report by Claira Lloyd

Published on 02/03/2015

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