Demand spurt as oil prices tumble 25%
Crude prices fell in July and August, but forecasts show demand will be stronger than anticipated
Crude prices fell sharply during July and into early August, weighed down by an abundant supply and a strong US dollar. By early August, global benchmarks had sunk around 25% below end June levels. As Petroleum Economist went to press, Brent was trading just under $50/barrel, while WTI was trading just over $43/b.
The International Energy Agency’s (IEA’s) latest forecast shows stronger-than-anticipated demand and non-Opec supply growth swinging into contraction next year. While a rebalancing has clearly begun, the process is likely to be prolonged as a supply overhang is expected to persist through 2016 – suggesting global inventories will rise further. During the second half 2015 the IEA sees supply exceeding demand by 1.4m b/d, testing storage limits worldwide.
Oil’s plunge below $50/b from triple digits a year ago has seen demand react more swiftly than supply. As a result, the IEA predicts world demand at 94.2m barrels/day (b/d) in 2015, or 1.6m b/d more fuel than the previous year as economic expansion consolidates and consumers burn more oil. That’s also the biggest growth spurt in five years and a dramatic uptick over the demand increase of just 700,000 b/d in 2014. US consumers, in particular, are responding to lower oil prices.
The latest Chinese oil demand numbers show relatively robust gains despite recent cracks in the country’s economic data. Near 5% year-on-year Chinese oil demand growth in the first half 2015 bucked stalling property prices and pessimistic business sentiment. Recent petrochemical expansions, coupled with the ongoing strength in the transport sector, offset any downside effect from the ongoing macroeconomic malaise, at least in the short-term.
Meanwhile, global refinery runs hit a record 80.6m b/d in July, up 3.2m b/d on a year earlier, but fissures are showing. High distillate stocks have pushed cracks in Singapore down to their lowest level since 2009 and prompted run cuts in Asia. Elsewhere, especially in the US, still-soaring gasoline cracks supported high margins and throughput.