Global oil demand to remain healthy despite geopolitical tensions
KUCHING: The overall global oil demand remains healthy with OPEC projecting a positive growth of 2.2mbpd while geopolitical developments are expected to keep oil prices high, analysts observed.
In a report, the research team at RHB Investment Bank Bhd (RHB IB) said it maintained its crude oil prices estimate at US$85 per bbl for 2024, as it assumed overall demand to still be healthy – registering a positive growth of 2.2mbpd.
“Overall, we expect oil prices to strengthen from current levels, assuming that global demand picks up while supply conditions tighten.
“We believe that the recent escalation in geopolitical tensions will provide support to oil prices over the near term, but this premium is also expected to normalise more prominently in 2H24.
“This is based on the assumption that there will be no further escalations in the current geopolitical landscape.
The disruptions in trade flows that stem from the Red Sea crisis are also spiking freight and insurance costs as well as lengthening shipping routes,” it opined.
It noted that oil prices reacted positively after Israel rejected a four and a half-month ceasefire offer in Gaza by Hamas, and initiated new air strikes on the city of Rafah.
Recall that militancy in Nigeria as well as conflicts in Libya once pushed oil prices to over US$120 per barrel and US$125 per barrel back in 2008 and 2011.
The Russia-Ukraine war also raised oil prices above US$125 per barrel back in March 2022.
It pointed out that long and dragged-out major event could lift oil prices by more than US$10 per barrel if the conflict worsens.
“We believe that the recent escalation in geopolitical tensions will provide support for near-term oil prices, but such a premium is expected to normalise more prominently in 2H24, assuming that there are no further escalations ahead,” it said.
On the Red Sea crisis disruptions, the research team believed that the problem might still be manageable at this stage.
“S&P Global Commodity Insights reported that while the disruptions in Red Sea have affected container shipping lines, oil shipments remain largely stable.
“The surge in insurance costs has prompted many tankers to switch to longer routes, which led to delays in deliveries.
“It was highlighted that Russia’s oil exports are particularly vulnerable to such disruptions, as 80 per cent of Moscow’s crude products are transported to Asia.
“At the same time, Europe is also importing more crude oil products from the US and West Africa, as trade flows from Asia and the Middle East to Europe are being disrupted. In the near term, we may see the prices of certain products rising,” it explained.
“In the longer term, though, we may continue to see Asia’s top oil importers diversifying their import sources to ensure that the supply of feedstocks is uninterrupted,” it noted.