The narrow balance between supply and demand suggests that stock levels will decrease in 2H2024.

Global Market Analysis Director Claudio Galimberti said, “Last week, Brent crude prices hit their highest level since April, driven mainly by strong market fundamentals.

OPEC+ reported much improved production compliance in the month of June compared to the previous two months.

In the meantime, geopolitical tensions in the Middle East—particularly involving Israel vs. both Hamas and Hezbollah—and the Houthis in the Red Sea are reintroducing a risk premium to oil prices, which we had not seen for a few weeks.

On Monday, hurricane Beryl made landfall in Texas, causing extensive power outages in Houston and shipping delays.

However, so far, it has had a limited impact on production and refining assets.”

On the geopolitical front, recent Houthi attacks in the Red Sea have sharply increased, disrupting shipping routes and impacting oil markets.
This escalation since late May has heightened maritime security concerns, prompting vessel rerouting and higher shipping costs.
With no signs of attacks ceasing amid ongoing geopolitical tensions, the potential for a prolonged closure of the Bab el Mandeb Strait looms.
This would influence global oil trade and shipping economics, with broader implications for regional stability and geopolitical strategies.

Israeli Prime Minister Benjamin Netanyahu has authorized negotiators to discuss a hostage release deal with Hamas, following positive responses from Hamas to US ceasefire proposals.
While the US welcomed the progress, the finalizing of a deal still may take time.
Hezbollah and Israeli forces have been trading near-daily fire since the eruption of the war between Israel and Hamas in Gaza on 7 October 2023, but have thus far avoided a full-blown war.
The risks for the oil markets lie in any deeper involvement of Iran in a direct war with Israel, as Iran currently produces 4 million barrels per day (bpd) of crude and condensate, of which about 1.8 million bpd are exported.

Switching to macroeconomics, China's manufacturing activity continued to decline in June, with the official purchasing managers’ index (PMI) at 49.5, once again indicating contraction.
Despite some resilience in industrial production and export momentum, other indicators like new orders and employment were weak.
The market anticipates further policy support from the Chinese government to stimulate domestic consumption amid ongoing economic challenges.
China's mixed economic signals impact global oil dynamics, raising questions about its policy choices and demand growth.
The upcoming Third Plenum, scheduled for July 15-18, is expected to announce measures to sustain economic recovery.
Rystad Energy’s analysis suggests China's crude imports and refinery runs will likely rise in the second half of 2024 due to seasonal demand, new capacities and policy support.

In the US, it is important to note that the case for a rate cut in September just got a small boost after jobs data was reported slower than expected and the unemployment rate ticked up to 4.1%.

Rystad Energy's updated supply outlook shows improved compliance in June, with OPEC+ production slightly above target by 53,000 bpd, averaging 33.903 million bpd.
Despite overall OPEC+ production dropping by 140,000 bpd to 40.911 million bpd due to lower outputs from Russia and the UAE, key voluntary cutters like Saudi Arabia, Russia, Iraq and Kazakhstan reduced their overproduction significantly.

Brazil, Venezuela, Guyana and Argentina are emerging as significant contributors to global crude supply growth.
Brazil's output is recovering and it is expected to reach 3.7 million bpd by year-end after a drop due to maintenance.
Venezuela's output is rising, with 2Q 2024 production expected to average 907,000 bpd post-US sanctions easing.
Guyana's production surged to 638,000 bpd in April, with an expected annual increase of over 27% until 2026, despite a 3Q dip.
Argentina's 1Q 2024 production increased by 8% year-on-year to 695,000 bpd, driven by shale output from the Vaca Muerta project, with expected growth of 10% in 2024 and 11% in 2025.
Despite challenges, the outlook for South America's crude production remains positive.

Both crude and liquids balances are expected to remain tight in the second half of 2024, leading to significant stock draws.
These draws should not come as a surprise, reflecting high summer demand supported by road transportation and strong aviation recovery and crucially with OPEC+ improving compliance with production cuts.

Transitioning to elections in Europe, a consequential bifurcation occurred across the Channel.
In the UK, Keir Starmer and the Labour Party's decisive victory on 4 July is poised to reshape the oil and gas sector with proposed tax reforms under the Energy Profits Levy (EPL).
Labour plans include potentially raising the EPL rate by 3% and eliminating the EPL investment allowance (IA), which is crucial for stimulating development in the UK North Sea.
These changes could impact investment and development activities, although they signal a potential boon for renewable energy investments under the party's clean technology focus.
Rystad Energy is closely monitoring this space, as part of our long-term Oil Macro Scenarios.

In France, elections on 7 July returned a hung parliament, with the National Rally—led by Marine Le Pen—failing to confirm the strong first-round results and coming third.
The New Popular Front (NPF), a rather hastily assembled leftist bloc spanning the far left to the center left, won the elections and now plans to govern with a program of high taxes and high expenditures, but it lacks the majority.
President Macron's centrist Ensemble came second but lost many seats.
The key takeaway is that a new government will take time to form, and due to the program differences between NPF and Ensemble, government instability will not be likely until the next elections.

Next week brings key reports that could influence the oil markets.
Consumer prices in China are anticipated to rise slightly from 0.3% to 0.4%, signaling potential economic recovery.
Meanwhile, in the US, the Core CPI year-over-year is expected to hold steady at 0.2%, suggesting stability in inflation levels, which is positive news for monetary policy and the rate cuts.

Overall, Brent prices, at $85-87 per barrel, appear consistent with the latest supply and demand balances and OPEC+ newly found compliance.
Therefore, any flare-ups on the oil geopolitical chessboard would result in upward price pressures in the coming weeks.