Crude Slips, Bunkers Soft Despite EIA Upping Oil Demand Growth Forecast

by Ship & Bunker News Team
Wednesday May 10, 2017

Demand for oil will have to be "surprisingly brisk" in the near future if the Organization of the Petroleum Exporting Countries (OPEC) is to avoid making the choice between maintaining a price floor and protecting market share.

That was the news delivered by Konstantinos Venetis, senior economist at research firm TS Lombard, as oil prices on Tuesday fell due to fears of slowing demand and increasing U.S. shale output: West Texas Intermediate fell 55 cents, to $45.88, while Brent dropped 61 cents to settle at $48.73 per barrel.

Bunkers were also soft today, with IFO380 down between $0.50/mt and $1.00/mt across all three of Ship & Bunker's global price indices - the Global 4 Port Average, the Global 20 Port Average, and the overall Average Global Bunker Price.

Venetis said that even though it is likely OPEC will extend its production cutback initiatives to at least the end of this year, "things do not look so rosy for the cartel beyond the near term," and it will face the price floor/market share crossroads in 2018.

Venetis did not outline what "brisk" demand should consist of, but presumably it's more than what the U.S. Energy Information Administration on Tuesday forecast: it raised its 2017 world oil demand growth forecast by 70,000 barrels per day (bpd) to 1.56 million bpd.

The question is, how feasible is a brisk demand growth in the near term?

If Platts is any authority, the answer is slim to none: analyst Vito Turitto, in providing a crude May outlook, notes that while the first half of April saw Brent prices soaring because of geopolitical tensions between the US and North Korea and disruptions to oil terminals in Libya due to rebel militias, "the market uptrend did not last much." 

And while he conceded that the market should make some gains despite market turbulence in the run up to May 25, "the uptrend in Brent prices should be slow and it is highly unlikely that the $54-$55/b range will be breached."

In other words, while reports of inventory builds differ and demand growth forecasts vary, data overall strongly suggests that demand growth is unexceptional - and therefore crude remains rangebound.

This was the contention of Peter Coleman, CEO and managing director for Woodside, who recently told Bloomberg, "I think at least over the next 18 months we'll be rangebound, with the bottom end of that being about $45....the top end might be $60."