Oil Prices Increase as IEA, OPEC Differ on Demand Outlook
Oil rallies over improved demand expectation in the United States, the world’s largest oil consumer. Crude oil prices have edged higher despite the IEA revising lower its global demand growth forecasts, ING said in a Thursday note.
ICE Brent price surge 0.34% to $83.03 per barrel from $82.75 in the previous day. American benchmark West Texas Intermediate (WTI) traded at $78.93 per barrel at the same time, a 0.38% increase from the previous session that closed at $78.63 per barrel.
US commercial crude oil inventories decreased by 2.5 million barrels to 457 million barrels during the week ending May 10, according to data released by the Energy Information Administration (EIA) late on Wednesday.
The EIA inventories showed a stock decline that far exceeded market expectations of a drop of around 400,000 barrels and signaled increased demand in support of higher price.
Over the same period, gasoline inventories fell by approximately 200,000 barrels to 227.8 million barrels. The latest Consumer Price Index data (CPI) in the US increased by 0.3% on a monthly basis in April, below market expectations.
Consequently, analysts perceive that the less-than-expected increase in consumer prices in April indicates a slowdown in inflation at the beginning of the second quarter, while raising expectations of an interest rate cut in September.
Furthermore, China, the world’s largest oil importer, announced plans to start issuing subsidized bonds worth 1 trillion yuan this week. According to a Ministry of Finance announcement, the bonds will be used to accelerate the economy’s sluggish development, which, if successful, would drive up oil demand and spur higher prices.
Additionally, concerns about wildfires in Canada causing supply disruptions as they move closer to the country’s major oil production hubs are driving up prices. The forest fires that started in Western Canada over the weekend continue to increase in impact, affecting tens of thousands of acres of land and leading to the evacuation of thousands of people.
Oil prices edged higher yesterday. ICE Brent managed to settle 0.45% higher on the day and this strength has continued in early morning trading today, according to ING commodity strategists.
Slightly weaker than expected US CPI and weaker retail sales data were supportive, increasing expectations that the Fed may start cutting rates soon. The market is now fully pricing in a September rate cut, while a second cut is also fully priced in by December.
EIA weekly inventory data also provided a helping hand to the market, ING said noting that US commercial crude oil inventories fell by 2.51 million barrels over the last week, which was more than expected, although less than what the API reported.
The stronger-than-expected draw appears to have been driven by refinery activity.
The IEA released its monthly oil market report yesterday. The agency revised lower its 2024 demand growth forecasts by 140k b/d from last month to 1.1m b/d year-on-year. This was largely due to weaker demand from Europe, while demand in 2025 is expected to grow by 1.2m b/d year on year.
The difference in demand growth numbers between the IEA and OPEC stands out, ING wrote. OPEC is forecasting growth of more than 1.1m b/d higher than the IEA numbers, which clearly will lead to very different views on the outlook for the market.
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