Posthaste: Oil demand 'on the rocks' in world awash with crude, warn strategists
Oil markets could be in for a stormy year, according to a new report from strategists at Bank of America.
The report warns that crude demand is “on the rocks” and oil will “buckle” if global inventories continue to build.
According to BofA’s commodity research team, global oil demand growth decelerated to 890,000 barrels per day in the first quarter of the year, and data suggests consumption will slow further in the second quarter.
At the same time oil inventories have swelled by 1.7 million barrels a day since mid-February.
“Supply growth contributed to the surplus, but demand is playing a role too,” said BofA.
The report suggests demand is declining in both the Organisation for Economic Co-operation and Development and non-OECD countries, and that gasoline demand in the United States dropped 230,000 barrels per day in the second quarter.
While consensus predicts an increase in oil prices in the third quarter, BofA researchers say it’s not yet clear whether the market will tip from a large surplus into the deficit needed to lift those prices.
Extended OPEC+ cuts will help if compliance is high and demand typically picks up in the third quarter. But if inventories continue to build “petroleum prices and structure will likely come under pressure,” they said. Refinery margins could fall further, especially in the Atlantic Basin where new capacity is due to come online.
BofA’s short-term outlook comes on the heels of a much wider debate that broke out last week.
Once we worried about “peak oil” — the fear that the world would run short of fuel — now the issue dominating the headlines is “peak oil demand.”
This reignited last week when the International Energy Agency predicted that oil demand would peak in 2029.
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