Global oil market set to rebalance
Upbeat distillate demand from emerging economies
Strong oil demand growth in emerging economies led by China and India, but also from some in Europe, is drawing down oil stockpiles faster than expected, putting the global market firmly on track for a rebalance, senior industry executives said.
Prices rallied in the third quarter as the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers cut output.
A surge in demand for diesel and fuel stock in a post-Harvey world has helped propel benchmark crude prices to nearly $60 a barrel, levels not seen in over two years, analysts said.
“We see the market over the next six months going well above $60 for a simple reason... surprisingly good demand,” Adi Imsirovic, head of oil trading at Gazprom Marketing and Trading, told the S&P Global Platts APPEC conference in Singapore.
“We see the market tightening strongly, we see oil moving out of storage quite fast,” he said.
The premium of first-month Brent futures over second-month futures is at the highest since April 2016. That market structure indicates there is strong immediate demand for oil.
“There are forecasts that demand could pass the threshold of 100 million barrels per day [bpd] of crude and liquids even in the next months or next year,” Eni Trading and Shipping CEO Franco Magnani said.
“Most of the economies in the world are still growing or relatively stable,” he noted.
What’s taken many in the industry by surprise is strong demand for distillates such as diesel, heating oil and jet fuel.
Global demand growth is higher than that seen in the last couple of years, “coming somewhere close to 1.6 to 1.7 million bpd and is driven by distillates”, said Janet Kong, BP’s chief executive of supply and trading at Eastern Hemisphere.
Trafigura, one of the world’s top commodity trading houses, now expects global demand to outstrip demand by 2 million to 4 million bpd by the end of 2019 as a sharp drop in investments in recent years lead to a decline in output.