Oil Stays Range Bound As Dismal Demand Projections Are Disclosed

by Ship & Bunker News Team
Thursday May 9, 2024

Within its range bound parameters, oil prices on Wednesday enjoyed a minimal gain on the strength of a drop in U.S. crude inventories and as the summer driving season draws closer.

Brent settled up 42 cents at $83.58 per barrel, while West Texas Intermediate settled up 61 cents at $78.99 per barrel.

According to the Energy Information Administration, refining increases were responsible for a 1.4 million barrel decline to 459.5 million barrels last week.

But Bob Yawger, director of energy at Mizuho, noted that the draw painted only a partial picture of the greater oil market; he said, referring to refinery utilization rates rising by 1 percent compared to 91 percent a year ago, "Gasoline demand is still below 9 million barrels per day [bpd] ahead of the start of the summer driving season….that is a pretty grim situation."

Oil prices have fallen more than 7 percent since their high of April when war between Israel and Iran was a chief fear; since then the war premium has largely been sold off (Morgan Stanley removed $4 per barrel of risk from its latest price forecast).

John Evans, analyst at PVM, said of the declining influence of the Israel/Hamas war on trading activity, "Taking away the current geopolitical trigger leaves the market staring into a world of sticky inflation in the U.S. that is countered by interest rates that not only keep the U.S. dollar elevated but make any sort of commodity trading more expensive."

In related news on Wednesday, Goldman Sachs stated it no longer expects the Organization of the Petroleum Exporting Countries (OPEC) to partially undo its voluntary production cuts in June and now gives only a 37 percent chance that it will.

The bank added in a note that it still expects Brent to remain between $75 and $90 per barrel in most scenarios and foresees the benchmark averaging $82 in 2025.

Also on Wednesday, while analysts such as Yawger worried about poor demand in advance of the summer driving season, Wood Mackenzie projected that gasoline demand growth will reduce by half this year due to the penetration of EVs into the global market.

Global gasoline demand will reportedly continue to grow over the rest of the year, by just 340,000 bpd to reach a total of 26.5 million bpd, compared to 2023's growth of 700,000 bpd.