Oil Trims Losses on Tight Near-Term Supply

Oil prices rebounded in early October as potential supply risks in the Middle East took center stage. Tensions between Israel and Iran, fueled by fears of a broader conflict and disruptions to Iranian exports, sent benchmark Brent crude futures soaring by $8/bbl. However, the market remains on tenterhooks, awaiting Israel's next move and the potential targeting of key Iranian energy infrastructure, such as the Kharg Island export terminal. Despite these concerns, the global oil market appears adequately supplied, with non-OPEC+ supply growth led by the Americas set to more than cover expected demand growth. OPEC+ spare production capacity stands at historic highs, providing a further buffer against potential supply disruptions.

The ongoing US hurricane season has had a relatively modest impact on crude oil production and exports from the Gulf Coast. Despite major hurricanes sweeping the region, production losses have been relatively modest, contributing to a stable market outlook. This is evident in the IEA's Oil Market Report for September 2024, which highlights a 640 kb/d decline in global oil supply in September, primarily driven by political quagmires in Libya and field maintenance work in Kazakhstan and Norway. The report also notes that OPEC+ spare production capacity stands at historic highs, barring the exceptional period of the Covid-19 pandemic, providing a further buffer to the market.



Refining margins slumped in September as gasoline, jet, and diesel cracks deteriorated, while crude prices improved. This led to a reduction in global crude run estimates by 180 kb/d to 82.8 mb/d for 2024 and 210 kb/d to 83.4 mb/d in 2025. The decline in refining margins is due to weak demand for refined products, particularly in China, where runs have been lower than expected. This, in turn, affects the global oil supply outlook, as reduced refining activity can lead to lower crude oil demand and potentially impact production decisions.

In conclusion, while geopolitical tensions in the Middle East pose short-term risks to oil supply and prices, the global market remains adequately supplied, with robust non-OPEC+ supply growth and ample OPEC+ spare production capacity acting as buffers. The ongoing US hurricane season has had a relatively modest impact on crude oil production and exports from the Gulf Coast. Refining margins and product demand influence the global oil supply outlook, with weak demand for refined products in China contributing to reduced crude run estimates. As supply developments unfold, vigilance in managing this complex landscape is crucial for maintaining market stability.