HomeBusinessFall in oil prices defies strong forecasts for global demand: Report

Fall in oil prices defies strong forecasts for global demand: Report

Fall in oil prices defies strong forecasts for global demand: Report

London:

Oil prices have fallen by almost a quarter in the past three months, largely due to fears of a prolonged slump in global energy demand. But no major predictor is actually predicting it.

Global oil demand, two of the closest predictors of the West’s energy watchdog, the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) – see it rising between 2% and 3% this year and next.

This is almost double the annual average in the decade before the Covid-19 pandemic in 2020, when the annual growth in global oil consumption averaged 1.2 million barrels per day (bpd).

Despite the economic storm clouds from Beijing to Washington, neither forecaster expects a post-pandemic rebound in oil consumption to be significantly affected by a potential slowdown.

“We are still optimistic,” OPEC’s new Secretary General Haitham Al Ghais told Reuters last month. “In 2023, there will be a slowdown in growth but it will not be something we currently anticipate to be below historical norms.”

Generally bullish, the Group of 13 oil exporting countries forecast demand growth of 3.1 million BDP this year and 2.7 million next year.

The IEA – which acknowledged this week that demand growth will stall in the last three months of this year – still expects overall oil consumption to rise 2 million bpd in 2022, followed by 2.1 million in 2023.

And the major Wall Street banks are striking a similar tone. Investment bank Goldman Sachs predicted in August that demand would increase by 2 million barrels next year despite signs of an economic slowdown in Europe and the United States from China.

Meanwhile, JPMorgan reaffirmed this week that oil demand growth will remain resilient, citing “our expectation that the global economy will stay out of recession”.

The mood in the oil markets is deepening. Close to $140 a barrel in March from Russia’s invasion of Ukraine, prices have suffered their biggest 90-day fall since the start of the Covid pandemic – and before that, the major ones of 2014-15 and 2008-09 decline.

For Swiss asset manager Julius Baer – whose view is that the benchmark Brent crude oil price will average $95 this year, one of the most bearish of all – the equation is simple: supply exceeds demand.

“We still see an increase in demand, mainly in emerging markets, but we also see steady demand in the Western world and China”, said Norbert Rucker, head of economics at Julius Baer.

In addition to stricter COVID-19 restrictions in several Chinese cities that have slowed economic activity, recent temporary refinery maintenance has led to a slump in oil demand, industry experts note.

Neil Crosby, senior oil analyst at consultancy OilX, said leading forecasters such as the IEA have slightly lowered their outlook for oil demand, but bearish investors were pricing under a much harsher impact from the downturn.

“Nobody is completely wrong, but at some stage these two signals will inevitably converge and are likely to be somewhere in between,” Crosby told Reuters.

recession risk?

According to the International Monetary Fund, a global recession is possible. The United States has gone through two quarters of negative growth and Chinese growth has been hit by the COVID-19 sanctions and asset crisis.

In its monthly oil report this week, the IEA said fuel use in the Organization for Economic Co-operation and Development (OECD) group of rich countries is expected to decline in the second half of this year.

But it will be compensated in part by rising demand for jet fuel for air travel and a shift towards using more oil for power generation, as Russia closes the gas tap for European countries, the IEA said.

An IEA spokesperson told Reuters that demand growth this year was mostly concentrated in the first half. The spokesman said the forecast for strong demand growth next year was partly based on expectations that China’s Covid restrictions would be eased and the world’s second-largest economy would bounce back.

In another positive sign for demand, U.S. refiners including Marathon and Valero told investors last month that they plan to run near full-throttle to replenish fuel inventories from near-historic lows throughout the year. are coming on.

There are indications that some market participants may have sought to buy the fall in prices, fueled by developments such as the dim prospect of a nuclear deal for Iran that would have returned large quantities of oil to international markets.

Investors lifted their net long positions in Brent crude oil futures in the last week of August, before narrowing slightly to a nine-week high, exchange data shows.

“Recent geopolitical developments … should be brisk for energy, but prices haven’t reacted yet,” JP Morgan said. “We advocate buying the dip”.

Key to the oil market outlook could be top fuel importer China, where the economy slowed in July, factory and retail activity squeezed by Beijing’s zero-COVID policy and asset woes.

Ed Hirsch, a professor of energy economics at the University of Houston, said that summer sugar refinery maintenance and the economic malaise cannot explain the lower imports and may help to temporarily lower global prices.

“The sell-off and the price drop really pertains to China which hasn’t soaked 750,000 barrels a day of crude oil for the past month and a half… % down. So that’s right.”

(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)

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