Crude oil futures fell back on Thursday’s session after making big gains in the previous session, with the latest weekly data showing a "massive" increase in U.S. domestic distillate and gasoline stockpiles, suggesting anemic demand for oil products likely due to well above normal temperature cycle this winter.
According to the Energy Information Administration (EIA), U.S. crude inventories for the final week of 2023 fell by a bigger-than-expected margin at 5.5M barrels; however, gasoline inventories surged by 10.9M barrels, marking the biggest weekly buildup in more than three decades.
Meanwhile, distillate inventories jumped by 10.1M barrels, way higher than the analysts’ consensus, while distillate product supplied fell to its lowest level since 1999. Distillate product supplied is usually considered a proxy for demand.
"Fuel demand is once again stalling and that's putting pressure on crude futures," BOK Financial's Dennis Kissler has said.
Whereas those reports appear like an overdose of bad news for oil bulls, part of Wall Street is saying to expect good times ahead.
To wit, commodity experts at Standard Chartered have predicted that oil demand growth in the current year will clock in at a robust 1.54 mb/d and 1.41 mb/d in 2025. Further, Stanchart says that decelerating non-OPEC supply growth and strong demand will support prices at higher levels. Related: Falling Spot Prices Trigger Surge in Asian LNG Imports
The bullish StanChart report has come out just days before the EIA is set to publish its first set of detailed monthly oil supply and balances on 9 January.
StanChart has forecast that global oil demand growth in 2024-2025 will remain above the longer-term average.
Once again, China is expected to lead in projected demand growth, with the world’s biggest importer of oil expected to see an uptick in demand to the tune of 553,000 barrels per day in 2024 and 373,000 in 2025 while India’s demand growth is expected to come in at 329 kb/d in 2014 and 373 kb/d in 2025.
The analysts have predicted that global monthly demand will move above 104 mb/d for the first time ever in August 2024 before eclipsing 105 mb/d in August 2025. StanChart sees non-OPEC demand growth outstripping supply growth in both years, leading to an increase in the call on OPEC crude by 520 kb/d in 2024 and 880 kb/d in 2025. Call on OPEC is an estimate of oil production volume required of OPEC countries to balance the global supply and demand for crude oil.
After hitting an all-time high in 2023, StanChart has predicted that U.S crude oil supply will continue rising, but at a slower clip.
The commodity experts have predicted U.S. oil production growth will slow from 1.009 mb/d in 2023 to 464 kb/d in 2024 before slowing even further to 137 kb/d in 2025. However, StanChart has acknowledged that current drilling and capex plans by U.S. producers suggest potential downside to its forecasts.
StanChart's forecasts align with the EIA’s which also expects little incremental crude oil supply in 2024. EIA estimates that U.S. crude output clocked in at 13.2 mb/d for the week spanning 21-28 December, and has forecast that the monthly average will not get back to 13.3 mb/d until December 2024
Another bullish year?
Last year proved to be an annus mirabilis for U.S. stock investors, with most corners of the market defying bearish expectations and turning on the afterburners to hit record highs. Unfortunately, Energy, Utilities and Consumer Staples stood out as the only sectors that failed to finish in the green roiled by rising interest rates.
Thankfully, the Fed has slammed the brakes on the rate hikes and signaled it could cut rates by a significant margin in 2024. At its last meeting in December, the Fed held rates steady in the 5.25% to 5.5% range, and also signaled they would cut rates by at least 75 basis points in the current year.
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Wall Street is bullish about these developments, and has dubbed 2024 ‘‘the year of the pivot.’’
Currently, there’s a lot of uncertainty regarding the supply/demand fundamentals in the global oil markets, something that could lead to a sideways trading in oil prices in the near term. Short-term traders can play the expected volatility using funds like DBO and PXJ that offer easy and cost-effective exposure to energy commodity futures.
Long-term bulls can, however, use the recent selloff of energy stocks to build positions in companies with healthy balance sheets including those with strong cash flows and a reliable dividend history.
By Alex Kimani for Oilprice.com
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Global market fundamentals are as solid in 2024 with global demand as robust as in 2023.
If not for continued manipulation of the market by speculators , oil traders and the United States flooding the market with 216 million barrels of SPR oil, prices would have surged far higher than they are.
Dr Mamdouh G Zsalameh
International Oil Economist
Global Energy Expert