Next year could be a year of reinvention for NOCs like Saudi Aramco.

It will be a period of low refining margins, with refiners less able or willing to buy as much crude. We’re already seeing a shift by state-owned Chinese refiners toward spot markets rather than term contracts with Middle Eastern suppliers, which reflects slowing demand, and also that buyers are scrutinizing every penny to stay profitable. Saudi Aramco can still do well in this environment, but it must adapt.

Is the market currently in balance?

Yes, but with the caveat that OPEC+ does not increase supply. At present, anticipated demand growth for next year is roughly equal to non-OPEC supply. Any additional OPEC+ production would likely depress prices. The market seems divided on whether OPEC+ will proceed to bring back production in December. If the expected increase does not materialize, the December Brent contract, especially in the first week, will see an immediate price up tick; those betting on additional supply would be caught off guard. So, we should expect potential

volatility in early December.

How relevant are oil inventories levels in this market?

They don’t have a substantial impact on long-term pricing in real terms. If we look at the US, the SPR has been drawn down to levels not seen in 40 years, yet the price impact has been minimal. The Department of Energy has essentially run out of funds, meaning this is likely the last SPR replenishment we’ll see under the Biden administration, and what will happen after that is uncertain. There’s also a key distinction between types of inventories. The most depleted inventories are government-controlled SPRs. With a consensus that the global economy will consume less crude in future, governments may not need to rebuild these strategic stocks. After the supply disruptions of 2022, several OECD and G7 countries released stocks, but most have not replenished them. The second type are commercial inventories - those held by refineries, ports, and pipelines – and these are essentially at 2021 levels. So, there’s some risk there, but it seems the market has moved on from speculating about it.