US inventory movements key short-term price driver

Oil price movements have remained highly volatile; however, it is believed that the stage is now being set for a more sustained drift up in prices in Q2 and Q3. Short-term market sentiment remains focused on the US market and the ongoing build-up in US crude oil inventories. 

Standard Chartered says in their view, the market is likely to wait for a confirmation of a levelling-off in inventories before there is an acceleration in the currently slow price recovery.While the major part of that process relies on the seasonal increase in refinery runs rather than on the supply side, they still expect the path of US crude oil output to play a totemic role. 

It appears that most of the market participants expect a relatively slow and shallow fall in US oil output, while the fall is expected to be more sudden and sharper. Once the market perceives that both US inventories and US output are falling, more global concerns are expected to start driving prices higher. 

Global concerns include the removal of the global surplus; the tipping into a growing global deficit in H2-2015; a very slow recovery in output in those OPEC countries where supplies have been constrained; and an increasingly evident sharp decline in conventional non-OPEC output.