As Brent crude futures experienced declines throughout May and early June, driven by concerns over sluggish oil demand growth and significant inventory builds, market dynamics have clearly shifted, IEA Oil Market Report (OMR) notes.
In particular, Brent futures fell by $6/bbl in May, before tumbling further in early June after the OPEC+ alliance announced plans to gradually unwind last year’s extra voluntary output cuts starting in 4Q24. Traders’ initial response was overwhelmingly bearish, with prices falling to a low of around $77.50/bbl, but OPEC+ officials quickly reiterated that a rollback of output reductions will be contingent on market conditions. At the time of writing, Brent had rebounded to $81.50/bbl – still about $11/bbl below early April’s 2024 highs.
In May, global observed onshore oil inventories swelled for a second consecutive month as lacklustre demand met with robust oil supply. Preliminary, albeit incomplete, data show oil stocks rising by 48.2 mb last month, led by the United States and China. The increase comes on top of a 19.3 mb build in April, when on-land stocks surged by 83.5 mb after eight months of draws. Oil on water plunged by 64.2 mb, however, partly reversing the 112.6 mb increase seen over the previous two months. OECD industry inventories rose in by April 32.1 mb, largely in line with seasonal trends, but remained 94.7 mb below their five-year average.
These stock builds come amid continued oil demand slowdowns in key markets, most notably the OECD. US and European data undershot expectations as exceptional gasoil weakness aligned with challenging industrial conditions. Overall annual gains in March of 650 kb/d for non-OECD countries failed to offset the 815 kb/d contraction in the OECD, resulting in an overall decline in demand of 165 kb/d year-on-year. Preliminary data for April and May point to further weakness, with Chinese demand growth slumping from 800 kb/d on average in 1Q24 to only 95 kb/d in April.
As a result, we have adjusted lower our expectations for 2024 global oil demand growth by a further 100 kb/d to 960 kb/d. Oil’s subdued outlook is expected to carry forward into 2025, with a modest increase of 1 mb/d reflecting lacklustre economic growth, an expanding EV fleet and vehicle efficiency gains.
..IEA states.
The latest bout of demand weakness shows up in refining margins in Asia and the United States, which retreated to three-year lows in May. Singapore margins are close to, if not already in, run cut territory, with gasoline cracks particularly weak. By contrast, Europe is hanging onto recent strength more effectively, as jet/kerosene cracks improved. Meanwhile, Chinese refinery runs slumped to Covid-era levels in April and an 8.7% y-o-y decline in Chinese crude oil imports in May suggest subdued runs again last month.
