Standard Chartered: Oil demand is not as rosy as you might think

Oil prices have been on the back foot this week, pulling back from recent weeks’ gains as geopolitical fears eased and seemingly endless concerns about demand. On Monday, US Secretary of State Antony Blinken announced that Israeli Prime Minister Benjamin Netanyahu had accepted a ceasefire proposal to end the war in Gaza, but on Thursday, sources close to the White House reported that such an agreement was no longer in place. one more time. it ends up like Hamas is unlikely to accept Israeli terms, which include the occupation of the Philadelphia Corridor, which Israel claims has provided Hamas with a strategic lifeline

Oil futures contracts fell sharply on Wednesday, with WTI crude falling to $72 a barrel and Brent crude briefly dipping into the $75 range. The outlook for weak demand in China has offset any gains from risks to supply, with government data showing domestic crude oil demand fell 8% y/y in July.

Commodity analysts at Standard Chartered have been able to assess crude oil demand on a global scale release of Joint Oil Data Initiative (JODI) data on 19 August.

According to StanChart, global oil demand in June reached a healthy 103.01 million barrels per day (mb/d), an all-time high. Following JODI revisions, StanChart estimates that May demand reached 102.68 mb/d, the second highest monthly average after June. Average demand growth for the second quarter was 1.521 mb/d, close to StanChart’s forecast for full-year 2024 growth (1.514 mb/d).

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The only data point in this report is that demand growth has slowed, with demand growth in June reaching 788 thousand barrels per day (kb/d), a deceleration from 1.267 mb/d in May and 2.129 mb/d in April . . StanChart predicted global demand would remain above 103 mb/d for the rest of 2024, before falling to 101.9 mb/d in January due to seasonality.

Meanwhile, global crude oil supply increase remains low, with June supply increasing by 160 kb/dm/m to 102.097 mb/d, well below the December 2023 all-time high of 103.162 mb/d.

The limited increase in global supply can largely be attributed to weak non-OPEC growth, particularly by the US. U.S. oil production will rise just 2.3% this year as shale producers discipline production and aim to return capital. shareholders. Crude exports from US ports have averaged 4.2 million bpd so far this year, up just 3.5% y/y from a robust level. 13.5% growth in 2023. This year’s rate of growth is the lowest since 2015, when the country lifted a 40-year federal ban on domestic crude exports.

U.S. shale producers simply aren’t willing to drill more. High decline rates for shale wells typically set in shortly after start-up, meaning additional well completions are required to offset drawdowns from existing wells if production is to be maintained. Earlier in the year, StanChart reported that the number of horizontal rigs began to decline sharply in early 2023 and is currently 20% below its post-pandemic peak, after falling for the past six months. Analysts point out that while the completion of previously drilled wells and technical changes provide some compensation, a significant decline in activity more often than not leads to a delayed decline in growth.

The gas rally is losing momentum

The big rally in Europe natural gas prices which started in July appears to have petered out due to high inventory levels and easing supply jitters. Dutch front-month futures, the European gas benchmark, were trading at €37.22 per megawatt-hour at 1315 ET on Monday, largely unchanged over the past 10 days but considerably higher than the price a month ago , at EUR 30.10 per megawatt-hour. The increase in US gas prices was more muted, with Henry Hub prices trading at $2.15/MMBtu from $2.01/MMBtu a month ago.

According to the latest Gas Infrastructure Europe (GIE) data, EU gas inventories are on track to exceed the EU Commission’s 90% capacity target 10 weeks ahead of the November 1 deadline. Gas stocks were 104.23 billion cubic meters (bcm) on August 18; good for a fill rate of 89.8%. German storage is already at 93.3% of capacity, well above the country’s September 1 target of 65%.

Last month, the US Energy Information Administration PREDICTED that US natural gas prices will rise sharply in the second half of the current year due to production cuts. According to the EIA, Henry Hub natural gas spot prices will average nearly $2.90 per million British thermal units (MMBtu) in 2H24, up from $2.10/MMBtu in 1H24, good for an increase of almost 40%.

By Alex Kimani for Oilprice.com

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