JP Morgan Analysts Say They Expect Oil Demand to Rebound in Coming Weeks

In a research note sent to Rigzone by the JPM Commodities Research team late Wednesday, analysts at J.P. Morgan said they expect oil demand to rebound in the coming weeks.

“Global oil demand has increased 1.2 million barrels per day year over year as of January 14, currently trailing 175,000 barrels per day below our projections,” the analysts said in the research note.

“Earlier gains, driven by heightened heating oil usage, were counterbalanced by disruptions in travel activities within the Unites States,” they added.

“Looking forward, we expect oil demand to rebound in the coming weeks, averaging 101.4 million barrels per day - a year over year increase of 1.4 million barrels per day,” they continued.

The analysts stated in the note that this surge is anticipated to be driven by heightened travel activities in India, “where a once in 12 years festival is projected to attract a crowd of 400 million people, as well as the upcoming Lunar New Year celebrations in China”.

The J.P. Morgan analysts also highlighted in the research note that “global observable oil inventories (crude and products) drew by 25 million barrels in the second week of January”.

“This decline was solely attributed to a 26 million barrel decrease in global crude oil inventories, as oil product inventories recorded a marginal one million barrel build,” they added.

“Notably, global crude oil stocks decreased despite an 18 million barrel build in Chinese inventories and relatively flat stocks in visible OECD locations, indicating that the draw occurred outside the primary inventory regions we monitor,” they continued.

“Meanwhile, global oil product inventories rose slightly, marking six consecutive weeks of increases,” the analysts pointed out.

The analysts said in the note that “reported visible OECD commercial oil stocks (including the U.S., Europe, Japan, and Singapore) experienced a net draw of six million barrels in the second week of January”.

This reduction was primarily driven by a four million barrel draw in crude oil stocks, complemented by an additional two million barrel decrease in oil product stocks, the analysts added.

“Regionally, the U.S. accounted for a combined draw of three million barrels, representing half of the OECD’s total draw, while European oil stocks were the only region to report an overall increase,” the analysts continued.

In a separate research note sent to Rigzone by the JPM Commodities Research team on January 8, J.P. Morgan analysts said “early indicators of oil demand suggest a strong start to January, likely driven by increased use of heating fuels in the Northern Hemisphere due to the cold weather”.

“We anticipate that oil demand will average 101.4 million barrels per day for the month, marking a 1.4 million barrel per day increase compared to the same period last year,” the analysts added in that note.

“Global oil demand is expected to remain strong throughout January, fueled by colder than normal winter conditions that are boosting heating fuel consumption, as well as an earlier onset of travel activities in China for the Lunar New Year holidays,” they continued.

In that note, the J.P. Morgan analysts stated that “global observable oil inventories (crude and products) decreased by 45 million barrels in the first week of January”.

“This overall decline was primarily driven by a substantial reduction of 53 million barrels in global crude oil inventories. However, an eight million barrel increase in oil product inventories helped to partially offset this drop,” they said.

“Remarkably, the significant drawdown in crude oil was concentrated almost entirely in China, which alone accounted for a 44 million barrel reduction during this period,” they added.

“Meanwhile, oil product inventories have been on an upward trajectory for five consecutive weeks, amassing an additional 19 million barrels, although these gains are still overshadowed by the shifts in crude oil inventories,” the J.P. Morgan analysts continued.

Also in that research note, the J.P. Morgan analysts highlighted that “reported visible OECD commercial oil stocks (including the U.S., Europe, Japan, and Singapore) experienced a net increase of 13 million barrels in the first week of January”.

“This growth was supported by a 10 million barrel rise in oil product inventories, complemented by an additional three million barrels added to crude oil stocks,” they said.

“In the U.S., oil product inventories surged by six million barrels, underpinning the robust overall product build, while significant crude stock increases in Japan further contributed to the overall rise in crude inventories,” the J.P. Morgan analysts continued.

To contact the author, email andreas.exarheas@rigzone.com