IEA monthly Oil Market Report - August

[dan_s]

Tells me that the global oil market is tighter than most people think it is. OECD Petroleum Inventories declined in Q2 and demand for oil-based products remains strong.
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IEA's Summary:

Oil markets exhibited Olympic levels of volatility over recent weeks. Benchmark crude oil prices tumbled sharply lower in July and early August as unexpected economic data threw the market off balance. Questions over the health of the global economy re-emerged as Japan increased interest rates sparking a reversal in yen carry trades, China’s outlook deteriorated and US hiring slowed in July. But persistent geopolitical tensions in the Middle East and some relatively positive macroeconomic data backstopped weakness in oil futures, with prices rebounding higher in the second week of August. Moreover, OPEC+ cuts are also tightening physical markets, lifting North Sea Dated to a $2/bbl premium against the front-month ICE contract. At the time of writing, ICE Brent futures traded at around $80/bbl, down by more than $6/bbl since the start of July.

Our outlook for global oil demand is largely unchanged from last month’s Report, with growth projected at slightly less than 1 mb/d in both 2024 and 2025. However, a meaningful shift in drivers is becoming apparent. In June, Chinese oil demand contracted for a third consecutive month, driven by a slump in industrial inputs, including for the petrochemical sector. Preliminary trade data point to further weakness in July, as crude oil imports sank to their lowest level since the stringent lockdowns of September 2022. By contrast, demand in advanced economies, especially for US gasoline, has shown signs of strength in recent months. The US economy, where one-third of global gasoline is consumed, has outperformed peers, with a resilient service sector buttressing miles driven. As a result, OECD oil consumption flipped from a 300 kb/d annual contraction in 1Q24 to growth of 190 kb/d in the second quarter.

Despite the marked slowdown in Chinese oil demand growth, OPEC+ has yet to call time on its plan to gradually unwind voluntary production cuts starting in the fourth quarter. Its Joint Ministerial Monitoring Committee (JMMC) reiterated on 1 August, however, that the group could pause or reverse its decision depending on prevailing market conditions. Our current balances suggest that even if those cuts remain in place, global inventories could build by an average 860 kb/d next year as non-OPEC+ supply increases of around 1.5 mb/d in 2024 and again in 2025 more than cover expected demand growth. The Americas quartet of the United States, Guyana, Canada and Brazil account for three-quarters, or roughly 1.1 mb/d, of non-OPEC+ supply gains in each of the two years.

For now, supply is struggling to keep pace with peak summer demand, tipping the market into a deficit. As a result, global inventories have taken a hit. After four months of gains, June saw oil inventories fall by 26.2 mb. Crude oil stocks dropped by 40.9 mb, even as China built substantially. Meanwhile, oil products rose by 14.8 mb, supported by large builds in US LPG. Preliminary July data suggest this trend continued, with total stocks declining once again as crude inventories lost further ground while oil products made gains. This dynamic is squeezing refinery margins, potentially setting the stage for an upset and shift in refinery activity in the coming months. Competition in the oil markets will continue even after the Olympic and Paralympic.
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PS: IMO OPEC will do whatever it takes to support oil prices. IEA's forecast of non-OPEC+ supply growth may be wishful thinking, and they always understate demand.

[cmm3rd]

By contrast, EIA's forecast in its August 6, 2024 STEO monthly report says that
- global oil inventories decreased by 0.4 million bpd in 1H 2024 and will decrease by 0.8 million bpd in 2H 2024,
- global liquids consumption will increase in 2024 by 1.1 million bpd (no change from prior month forecast) and in 2025 by 1.6 million bpd (down from 1.8 in July's report), and
- Crude prices will increase in 2H 2024, with Brent at $85-90 by year end.

So, EIA says further tightening of crude supply should be expected between now and YE and that Brent will reach $85-90 by YE.

Hopefully OPEC+ concludes they need to further extend their production cuts to keep Brent above $80.

Btw, EIA's report also says that due to seasonal space heating demand and increasing LNG exports in Texas and Louisiana, Henry Hub ngas will average $3.10 from the November - March time frame.

https://www.eia.gov/outlooks/steo/

[dan_s]

HFI Research recently forecast that WTI will spike to $90/bbl within a few months because they see U.S. and OECD Petroleum Inventories falling to bottom of five-year average in September.