Oil market report – May 2024 – Analysis – AIE – AIE

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Oil market report – May 2024 – Analysis – AIE – AIE

Benchmark oil prices corrected sharply lower during April and early May as concerns about the health of the global economy and oil demand fueled a sell-off. Reports of progress toward a truce in Gaza also weighed on oil prices, even as geopolitical tensions remain high. Brent futures were trading at around $83 per barrel at the time of writing, down almost $8 per barrel from the previous month, despite signs of tension in the crude oil market.

The spring sell-off was most notable in the middle distillate markets, as diesel and jet fuel cracks collapsed while the front-month NYMEX ULSD contract turned into contango after years of delay. In the process, global refinery margins fell to their lowest level in two years, sparking talk of volume cuts that could jeopardize the seasonal rebound in production rates. The fall in European refinery margins in April exceeded those seen in the U.S. Gulf Coast and Singapore, reflecting their heavy reliance on diesel production and weak regional demand that are eroding the needed premium. to attract long-haul imports from east of Suez.

Low industrial activity and another mild winter have undermined diesel consumption this year, particularly in Europe where the declining share of diesel cars in the fleet was already undercutting consumption. After an annual contraction of 210 kb/d in 2023, European diesel demand further decreased by 140 kb/d year-on-year in 1Q24. Combined with weak diesel deliveries to the United States at the start of the year, this situation was enough to send OECD oil demand back into contraction in the first quarter. Global oil demand is now expected to increase by 1.1 mb/d in 2024, 140 mb/d less than forecast in last month’s report. Our global outlook for 2025 remains largely unchanged, with the pace of growth now slightly eclipsing that of 2024, at 1.2 mb/d.

The health of global oil demand is likely to be a key topic of discussion when OPEC+ ministers meet in Vienna on June 1 to set production policy for the rest of the year. Despite the recent weakness, our current balance sheets show that OPEC+ crude oil call will be around 42 mb/d in the second half of this year, about 700 mb/d higher than its April production.

Next year, the market looks more balanced overall. Even if voluntary OPEC+ production cuts were to remain in place, global oil supply could increase by 1.8 mb/d from this year’s more modest annual increase of 580 mb/d. Non-OPEC+ production is expected to increase by 1.4 Mb/d over the two years, while OPEC+ production will increase from a decline of 840 Mb/d this year to growth of 330 Mb/d in 2025. The United States, Guyana, Canada and Brazil continue to grow. to dominate gains, even as the pace of U.S. supply expansion slows.

The June meeting could also take a close look at global oil stocks as an indicator of the delicate balance between global oil demand and supply. Preliminary data shows a further increase in stocks in April, as land-based stocks soared after the oil spill on the water. Growing trade disruptions pushed on-water oil to a post-pandemic high in March, while onshore stocks were at their lowest level since at least 2016. A return to historical average stock levels will be key to avoiding a new market volatility.

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