Paisie: Oil Demand to Rise 1.2 MMbbl/d in Second Half

In alignment with our expectations, the price of Brent crude has moved into the range between $86/bbl and $88/bbl.

For the rest of the year, we forecast Brent to average $87.90/bbl during the third quarter, with WTI averaging $82.37/bbl. In the fourth quarter, we are forecasting that the price of Brent crude will average $86/bbl and the price of WTI will average $80.76/bbl.

We are forecasting that oil demand will increase by a net 1.2 MMbbl/d in the second half of the year in comparison to the second half of 2023. Asia’s oil demand is forecasted to increase by 1.11 MMbbl/d. Other regions are expected to have moderate growth—while Europe’s demand is forecasted to decrease by around 300,000 bbl/d.

Demand for jet fuel is forecasted to have the most significant increase in percentage and volume terms, followed by diesel fuel, while gasoline is forecasted to have much lower growth in demand.

We are forecasting that non-OPEC oil supply will average 1.17 MMbbl/d more in the second half of 2024 than in the second half of 2023. Additionally, we are forecasting that supply will be outstripped by demand in the third quarter by around 350,000 bbl/d. We are forecasting that supply and demand will be essentially balanced during the fourth quarter.

For the remainder of the year, it is our base case that geopolitics and the ongoing wars will having limited material impact on the volumes of oil available to the market. Geopolitical developments, however, do present a potential risk to the future flow of oil, as well as the outlook for oil demand.

More importantly, the developments have the potential to disrupt the stability of the geopolitical structure that has been in place for the last 30-plus years.

Risks

We see limited potential for upside to demand growth for the rest of the year, given that the economic data continue to be disappointing.

The latest data from China’s National Bureau of Statistics (NBS) purchasing managers’ index (PMI) for manufacturing came in at 49.5 in June and is the second consecutive month of reading below 50, which indicates contraction. New orders, raw material stocks, employment and new export orders were all in contraction. The non-manufacturing PMI (includes services and construction) showed a slowdown in growth with the PMI decreasing to 50.5 from 51.1 in May, which is the lowest since last December.

While the inflation rate is coming down in the U.S., economic growth is also slowing with the job market cooling and consumers finding it more difficult to increase spending. In Europe, the largest economies—France and Germany—continue to struggle in the face of uncertainty.

The major economies continue to deal with their own short-term issues, and we see a limited likelihood of any major economic downturn occurring during the second half of this year. The risk of an economic downturn becomes more likely over time, in part, because each of the major economies will need to resolve their own specific structural factors that undermine their capabilities for sustainable economic growth.

From a supply perspective, there are upside and downside risks.

While we are forecasting that non-OPEC supply will increase during the second half of this year, it is possible that the extent of the increase will be less than our forecast, in part, because of U.S. production increasing at a lower level than our current forecast.

Last year, U.S. production increased significantly in the second half of last year. At the beginning of 2023, U.S. production was 12.2 MMbbl/d and production remained flat through most of May. By the end of 2023, U.S. production had reached 13.2 MMbbl/d. For 2024, increasing supply will be more challenging unless U.S. producers start ramping up capital expenditures and drilling programs beyond current plans.

There is also the potential that supply will be greater than forecasted because of additional supply from OPEC+ resulting from a breakdown in cooperation among members. While there are inherent challenges to maintaining discipline and cohesion among the members, we are expecting OPEC+ to continue focusing on managing supply proactively to align with demand. One nagging concern is that the research arm of OPEC is still forecasting demand growth of 2.25 MMbbl/d for 2024, which is significantly higher than our forecast, as well as IEA’s forecast.