Oil Rallies after OPEC Maintains Demand Forecast

Oil price rose on Wednesday as US dollar weakness lifted market demand higher following Tuesday bearish run in the global commodity market.  Also, OPEC left its demand growth estimates unchanged at 2.25 and 1.85 million barrels per day for 2024 and 2025, respectively

Crude oil prices declined on Tuesday as investors adopt a risk-averse attitude toward markets, triggered by higher-than-expected U.S. producer prices, ANZ Bank said in a Wednesday note.

The lack of progress on bringing down inflation continues to lower expectations of a rate cut, the bank noted. The Organization of the Petroleum Exporting Countries also maintained its global oil demand growth forecast of 2.2 million barrels per day (b/d) in 2024 and reported lower oil production ahead of its June meeting.

However, a Bloomberg survey showed that OPEC and its allied producers exceeded their output quotas last month, pumping about 568,000 b/d above the agreed limit. Iraq and Russia exceeded the limit the most.

Meanwhile, the International Energy Agency revised its oil demand growth forecast lower for 2024, further widening the gap between its forecast and OPEC’s, Reuters said in a Wednesday report. The IEA cut its growth outlook by 140,000 b/d to 1.1 million b/d, citing weak demand in developed nations.

After previously recording losses, Brent crude gained 0.5% to US$82.70 per barrel and West Texas Intermediate crude rose 0.4% to US$78.35/b at last look early Wednesday.

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The rise can be attributed to a weaker U.S. dollar and an American Petroleum Institute report showing US crude and gasoline inventories fell week over week, Reuters reported Wednesday.

The benchmark Brent crude oil price will remain range-bound between US$80 and US$90 per barrel through the second quarter, Macquarie strategists said in a Tuesday note.

After the second quarter, oil is forecast to become bearish as a result of supply growth outside the Organization of the Petroleum Exporting Countries, decreasing the space capacity of OPEC and its allied producers, as well as softer-than-anticipated demand due to persistent inflation, Macquarie noted.

Through the first half of May, changes in the gap between Dated and ICE Brent indicated a decrease in Brent market physical tightness, according to Macquarie. Oil prices came under pressure yesterday. ICE Brent settled almost 1.2% lower on the day.  However, the American Petroleum Institute (API) numbers released overnight have supported oil prices in early morning trading today.

According to the API, US crude oil inventories fell by 3.1 million barrels last week, more than the roughly 600k barrel draw the market expected. In addition, crude oil stocks in Cushing fell by 600k barrels, while gasoline inventories declined by 1.27m barrels.

Distillate stocks increased by a modest 349k barrels. The more widely followed EIA report will be released later today, however, it could be overshadowed by US CPI data.

There was little change to OPEC’s outlook in its latest monthly market report. The group left its demand growth estimates unchanged at 2.25 and 1.85mbpd for 2024 and 2025, respectively.

These numbers remain bullish relative to demand estimates from others, including the IEA. OPEC supply in April fell by 48k barrels per day month-on-month to 26.58m b/d, while OPEC+ supply fell by 246,000 per day month on month to 41.02 million barrels per day. 

Despite Iraqi output falling over the month, it continues to pump above its target production levels. The IEA will be publishing its monthly oil market report today.

OPEC+ is also reportedly relooking at certain members’ production capacity and whether they can produce at their stated capacity levels. Increasing capacity among some members will likely see them push for higher production levels for 2025. This leaves the risk of disagreement between members. Moniepoint Ranks as Africa’s Fastest Growing Fintech Company

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