Brent set to rise as oil glut begins to clear: report

10/04/2016 15:16 AST

The oil market is now poised to rebalance in the next six quarters and Brent crude price is likely to rally to $47 per barrel by mid-year, according to a new report by Bank of America Merrill Lynch.

The report titled ‘Global Energy Weekly: Brent outpacing gasoline’ said the global oil supply glut that brought prices down from $115 to $27 per barrel is starting to clear.

Fuelled by gasoline, global oil demand grew by 1.7 million barrels per day (bpd) year on year in 2015 and the demand strength is expected to continue this year, the report said.

However, crude oil inventories could initially decline at a faster rate than product stocks, suggesting that Brent prices may recover faster than gasoline or diesel, the report said.

The recent shutdown of the 590,000 bpd Keystone pipeline that carries Canadian crude into the Midwest US as well as North Sea field maintenance could both exacerbate this trend.

Encouraged by the low fuel prices at the pump, Americans continue hit the roads. "We expect miles driven to set a new record this summer, lifting gasoline demand to record levels. Drivers in other countries are also doing their part. After all, global oil demand grew by 1.7 million bpd YoY in 2015, the second strongest rate in a decade, with gasoline accounting for half of that growth. The low prices should continue to shift consumer preferences towards larger and less fuel efficient cars, boosting gasoline demand in 2016 and beyond," the report said.

"For instance, YoY SUV sales growth in the US has exceeded 10 per cent in nine out of the past 11 months. As such, we expect global gasoline demand growth of 0.5 million bpd in 2016, 65 per cent above the 10-year average, and total oil demand growth to exceed 1.2 million bpd," it added.

While global gasoline balances are tightening structurally, many gasoline refining units are now returning from maintenance. Petroleum product stocks all around the world are also generally quite high due to the warm winter. Meanwhile US shale oil production is now in freefall. Thus, as the global oil glut starts to clear, crude oil should lead the way, the Bank of America Merrill Lynch said.

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