Standard Chartered, JP Morgan Talk Oil Demand

The widespread perception among oil market participants that oil demand has been disappointing is not supported by data.

That’s the view of Standard Chartered analysts, according to a report sent to Rigzone this week, in which the analysts said 2024 oil demand growth forecasts from the “key assessment agencies have trended higher in recent months, and backward-looking revisions of actual demand have tended to be higher”.

“This pattern continued with the latest EIA (Energy Information Administration) PSM, published on January 31,” the analysts stated in the report.

“Total November U.S. oil demand was revised higher by 910,000 barrels per day to 20.71 million barrels per day, taking the year on year increase to 2.45 percent from the initial estimate of a 2.05 percent decline,” they added.

The analysts also pointed out that gasoline demand was revised 255,000 barrels per day higher to 8.845 million barrels per day, noting that this is a year on year increase of 0.21 percent as opposed to the initial estimate, based on weekly data, of a 2.7 percent decline. Gasoline demand has been revised higher in each of the past five months, with an average revision of 247,000 barrels per day, the analysts said in the report.

“The latest large upward U.S. revision takes our estimate of November 2023 global oil demand to 102.08 million barrels per day, making it only the third month ever in which demand has exceeded 102 million barrels per day,” the Standard Chartered analysts stated in the report.

“We also expect final data for December 2023 and February-March 2024 to show demand surpassing 102 million barrels per day, lifting the tally to six months, despite relatively mild winter conditions in some key consuming areas,” they added.

“We estimate that the year on year increase in November was a strong 2.41 million barrels per day. Further, year on year growth of 2.30 million barrels per day in Q4-2023 exceeded the 1.92 million barrel per day year on year growth for 2023 as whole, suggesting that a widely discussed Q4 demand slowdown may have been an illusion based on partial and unrevised data,” the analysts went on to state.

Oil demand data may be proving strong and U.S. crude oil supply might disappoint, but as of now, market sentiment remains resolutely bearish, the Standard Chartered analysts noted in the report.

“A growing number of traders appear to think that current prices below $80 per barrel and 30-day realized annualized volatility of just 25 percent are too low given fundamentals and geopolitical risks,” the analysts added.

“However, those traders are largely on the sidelines at the moment. We still see price risk as heavily skewed to the upside, but sustained momentum higher has proved elusive,” they continued.

In the report, the analysts highlighted that SCORPIO, Standard Chartered’s machine-learning oil price model, indicates a week on week fall of $0.31 per barrel to settlement on February 12.

In a research note sent to Rigzone on January 29, analysts at J.P. Morgan said their view remains that oil demand growth will slow from “a very strong 1.8 million barrels per day in 2023 to a still strong 1.5 million barrels per day in 2024, underpinned by a moderating but still resilient global economic expansion and remaining pent-up oil demand”.

“Incoming macro data point towards a healthy global economy and high frequency oil demand indicators for January are coming a touch stronger than seasonality would suggest,” the J.P Morgan analysts stated in the note.

Looking at supply, the analysts said in the note that producers outside of the OPEC+ alliance should drive overall growth, “projected at 1.6 million barrels per day, matching growth in demand”.

“While impressive, it is substantially below the 2.4 million barrel per day gain averaged last year, and combined with our optimistic view on demand, should give Saudi Arabia and Russia optionality to either continue to constrain production or unwind some of the voluntary cuts,” they added.

“All of this means a largely balanced market with Brent moving from the mid $70s in January to the low $80s by March and high $80s by May, before leveling off in the final quarter of the year,” they continued.

In the research note, the J.P. Morgan analysts said the biggest pushback against their view “has not been the balanced supply-demand outlook, but whether a balanced market is indeed worth $80”.

“A 2024 market where oil supply growth is sufficient to cover growth in demand is one of the reasons why investors today perceive oil to be an unattractive investment opportunity,” the analysts stated in the note.

“This perception is a marked turnaround from even a year ago, when the consensus view was that given the capital discipline and years of underinvestment in the U.S. and other non-OPEC oil supply, OPEC and its allies had a firm grip on the market,” they added.

“Indeed, assuming constrained non-OPEC output and looking at instances of balanced markets pre-shale-revolution in 2013, a balanced market was worth $90+. However, in a regime of plentiful non-OPEC supplies post-2013, during the most recent examples of balanced markets in 2016 and 2019, Brent oil prices averaged $45 and $64, respectively,” they continued.

“For 2024 we assume supplies outside of the OPEC+ coalition are sufficient to cover global oil demand, yet, our pricing model shows the Brent oil price averaging $83 this year,” the analysts went on to state.

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