Standard Chartered: Oil demand not as pessimistic as one might think

Oil prices have been on the decline this week, giving up gains from the past few weeks on the back of easing geopolitical fears and seemingly never-ending demand concerns. 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 a deal was once again out of reach as Hamas unlikely that they will accept the Israeli conditions, which include the occupation of the Philadelphia Corridor, which, according to Israel, provides Hamas with a strategic lifeline

Crude oil futures fell sharply on Wednesday, with WTI crude falling to $72 a barrel and Brent crude briefly falling to the $75 mark. Prospects for weak demand in China wipes out all gains Supply depends on the risks: government data show that demand for crude oil in the country fell by 8% in July compared to a year earlier.

Commodity analysts at Standard Chartered were able to estimate the demand for crude oil on a global level after the publication of the Joint Oil Data Initiative (JODI) data on August 19.

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

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The only bearish data point in this report is that demand growth has slowed. In June, demand growth was 788,000 barrels per day (kb/d), a slowdown from 1.267 mb/d in May and 2.129 mb/d in April. StanChart has forecast global demand to remain above 103 mb/d for the rest of 2024 before declining seasonally to 101.9 mb/d in January.

Meanwhile, global Supply growth remains subdued, with supply increasing 160 kb/dm/m to 102.097 mb/d in June, well below the December 2023 all-time high of 103.162 mb/d.

The limited global supply growth is largely due to weak growth outside OPEC, particularly in the US. US oil production is expected to grow by just 2.3% this year as shale producers maintain production discipline and aim to return capital to shareholders. Crude oil exports from US ports have averaged 4.2 million barrels per day so far this year, up just 3.5% year-on-year, compared to a robust 13.5% growth in 2023This year's growth pace is the slowest since 2015, when the country lifted a 40-year-old federal ban on exports of domestic crude oil.

U.S. shale oil producers are simply not willing to drill more. High decline rates in shale oil wells typically begin soon after commissioning, meaning additional well completions are needed to offset declines in existing wells if production is to be maintained. Earlier this year, StanChart reported that horizontal rig counts began to decline sharply in early 2023 and are currently 20% below their post-pandemic peak after remaining stagnant for the past six months. The analysts point out that while completions of already drilled wells and engineering changes provide some compensation, a significant decline in activity in most cases results in a delayed decline in growth.

Gas rally loses momentum

The big rally in Europe Natural gas prices The rally that began in July appears to have lost momentum due to high inventories and easing supply fears. Dutch front-month futures, Europe's gas benchmark, were quoted at €37.22 per megawatt hour at 1:15 p.m. ET on Monday, largely unchanged over the past 10 days but significantly higher than the price a month ago, which was €30.10 per megawatt hour. The rise in gas prices was more muted in the United States, where Henry Hub prices traded at $2.15/MMBtu, up from $2.01/MMBtu a month ago.

According to the latest data from Gas Infrastructure Europe (GIE) EU gas stocks are close to exceeding the EU Commission's capacity target of 90% ten weeks before the November 1 deadline. Gas stocks amounted to 104.23 billion cubic meters (bcm) on August 18, corresponding to a filling rate of 89.8%. German storage facilities are already at 93.3% capacity, well above the German target of 65% as of September 1.

Last month, the US Energy Information Administration predicted that US natural gas prices will rise sharply in the second half of the current year thanks to production cuts. According to the EIA, the spot price for natural gas at the Henry Hub will average almost $2.90 per million British thermal units (MMBtu) in the second half of 2024, compared to $2.10/MMBtu in the first half of 2024, an increase of almost 40%.

By Alex Kimani for Oilprice.com

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