Iran Energy News Oil, Gas, Petrochemical and Energy Field Specialized Channel
Related Articles
Despite lingering concerns about China’s economy, global oil demand hit a record high in June and could be on track for another record in August, the International Energy Agency (IEA) said in its latest monthly report.
The cuts from OPEC+ and Saudi Arabia, coupled with expected continued strength in demand, are set to result in inventory draws for the rest of the year, supporting oil prices, analysts and forecasting agencies say.
China, of course, will be the key driver of price moves either up or down, depending on how its economy fares and how much stimulus authorities are ready to unroll to help a much-awaited rebound after the reopening early this year.
So far into 2023, weaker-than-expected Chinese economic data have stopped price rallies in their tracks. U.S. economic prospects have turned somewhat brighter, with the Fed and investment banks no longer expecting a recession.
But persistent worries about China are holding oil prices back.
Just this week, following seven consecutive weeks of gains, oil prices dipped on three consecutive days after China reported another set of weak economic data. Concerns about the property and credit markets in the world’s second-largest economy also weighed on market sentiment.
The central bank of China pledged on Thursday to keep its policy “precise and forceful” to help the economy struggling to lift off.
The bank vowed to “better leverage the dual functions of aggregate and structural monetary policy tools and firmly support the recovery and development of the real economy.”
The oil market continues to be cautious about China’s economy and until market participants see additional measures to prop up the economy in the world’s top crude oil importer, and results from these measures, concerns about China will not abate.
China’s woes and a weak European economy have likely translated into only modest oil market tightening since June, Reuters market analyst John Kemp argues.
However, demand and the market tightness may have been underestimated.
Global oil demand hit a record 103 million bpd in June, and August could see yet another peak, the IEA said in its closely-watched Oil Market Report (OMR) for August. World oil demand is set to grow by 2.2 million bpd this year, with China accounting for more than 70% of growth, the agency noted.
Fuel demand in Europe is also strong in the summer.
Energy consultancy FGE estimates that European gasoline demand rose by 3% year over year in June and by 5% annually in July, to the highest level since 2011.
Bank ING assumes that U.S. oil demand will be largely flat year-on-year.
“But this may be too conservative, given that implied gasoline demand has been tracking above last year’s levels for much of the year,” Warren Patterson, Head of Commodities Strategy at ING, wrote in a note on Thursday.
Implied U.S. gasoline demand so far this year has averaged 8.88 million barrels per day (bpd), up by 1.4% year-on-year, Patterson noted.
The past few weeks have seen some pullback in demand, which could be due to the rising gasoline prices, analysts say.
“Constructive fundamentals should mean more strength in the months ahead,” ING’s Patterson said.
