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Source: 'Reuters - Business videos'

Description: A Reuters poll forecasts that Brent crude will average $82.33

this year, far below its current level of over $87. LSEG's Jim Mitchell

explains why he thinks current prices are at the top of the range.

Short Link: https://refini.tv/43B0hyU

Video Transcript:

Firmer oil prices may be on the horizon. Welcome to Market Insight, I'm Ramzan

Karmali. Oil prices will gain momentum this year as demand picks up and output

cuts by OPEC+ continue to squeeze supply. This is according to a Reuters poll

of 46 economists and analysts. They forecast Brent would average $82.33 a

barrel this year, it's the first upward revision since October but well below

its current level of over $87. So where next? Let's ask Jim Mitchell, the Head

of Americas Oil Analysts at the London Stock Exchange Group. Jim, thanks so

much for joining us. Let's start with today's survey, is it already out of

date seeing as oil prices are up 12% this quarter alone?

Yes and no, I think we're obviously above their numbers, but I think we're

probably near the top of the range, for the- if we're talking about the entire

year. Now, you mentioned about the OPEC cuts and can they maintain discipline.

I do believe they can maintain discipline through their June meeting, given

there's no supply shock. The demand is the part that everybody has waffled on

a little bit, where agencies like IEA thinking somewhere around 1.3 million

barrels a day of growth and OPEC thinking somewhere around 2.2 million barrels

of growth. We're somewhere in the middle, somewhere around the 1.7-1.8 million

barrels of growth. So that will put interesting dynamics in the market and

some upward pressure.

So, are we close, at the moment, at above $87 a barrel? Is this the mark that

you predict or are you closer to where the Reuters survey is, at $82?

So, I'm a lot closer to their survey number. I think we're probably near the

top of the range given some of the dynamics that are happening in the market

right now. The Russian refineries getting hit with drone attacks, some of the

attacks that are happening in the Red Sea. Those I don't think are going to be

with us through the entire year or even June. So, we're at a little bit of a

heightened state right now.

You talk there about OPEC discipline in your first answer and they're expected

to hold a lot on output cuts. But what's going on there and how will this

actually impact on prices going forward?

Yes, so really interesting question. I do believe that they will hold their

discipline, as I mentioned, through June. But with that said, it's important

to note that Saudi Arabia has 3 million barrels of capacity sitting idle. Iraq

probably somewhere around 500,000, Emirates has a pretty sizable chunk,

Nigeria has a pretty sizable chunk. So, there is excess capacity and it's not

exactly as easy as flipping on a switch in this and the oil starts flowing

tomorrow. It'll take a couple of weeks, but they can do it relatively quick.

Now in your notes, you mentioned “sneaky demand for gasoline.” Can

you elaborate on that, please?

So, gasoline has been a very interesting topic in the past three years. Let me

give you a frame of reference, in December of 2022, which is China's biggest

export year, export month typically for gasoline. In 2022, they exported

666,000 barrels a day for the month. December of 2023, so it's just a few

months ago, it was 159,000 barrels a month. So, about a quarter of what their

exports are, which means then there's not a whole lot of gas- excess supply of

gasoline in the Pacific market as there has been in the past. Which then means

any supply or any demand increase specifically in California where it's pretty

substantial demand, and in the Gulf coast here - I'm in Houston - pretty

substantial demand, that has to be met by something other than Chinese

gasoline imports. And that in my opinion is driving this rally.

Now at the end of the day though, record US output will limit the upside for

oil prices, won’t they?

I agree with that, and we have seen record US production in Texas and New

Mexico and North Dakota and even states like Ohio. But it's important to note

there, to get to this level, we have used a lot of our DUCs, drilling

uncompleted wells. Give you some perspective, in January of 2020, we had

around 8,600 DUCs. Now we're somewhere around 4,400. So, this is a hand you

can only really play once, and it's been played. So, it's going to be

difficult for the US to increase production in the next year, unless we drill

more wells.

Jim Mitchell, LSEG's Head of Americas Oil Analysts, thank you very much for

your thoughts. And this is your Market Insight.