The International Energy Agency (IEA) is acknowledging what the oil market structure has been suggesting for a while and that the physical markets for global oil supply are tightening.
In fact, the IEA is saying that oil supply is struggling to keep pace with peak summer demand, tipping the global oil market into a deficit.
While the IEA is quick to point the finger of blame at OPEC Plus and their production cuts, they too hold some responsibility as they have discouraged investment in fossil fuels giving OPEC Plus more power to control the market.
The IEA said that global observed oil inventories fell by 26.2 mb in June, following four months of builds totaling 157.5 million barrels. They also had to back away from their ‘peak gasoline’ demand prediction as electric car sales are not happening like they thought they might.
The IEA said that it no longer expects 2024 gasoline to peak in global gasoline consumption in 2024, as it now forecasts a small increase in demand in 2025. In fact, the IEA puts gasoline demand at 27.4 m b/d, consumption next year would be 500,000 higher than in 2019.
This supply deficit comes at a time when the world is on edge as it seems like the world is on the verge of a major escalation in war and no one seems to be able to do anything about it.
The war premium kicked in yesterday as reports that U.S. Defense Secretary Lloyd Austin has ordered the deployment of a guided missile submarine to the Middle East and suggests that Iran could attack Israel within hours.
Yet oil prices are easing because it appears the market is wondering whether this attack will happen or if is it the little boy who cried wolf. Iran may be having second thoughts about the attack, especially with this show of force from the United States as well as its allies.
Reports that Ukraine had an incursion in Russia raised concerns that Russia might cut off gas supplies or that Ukraine. Both countries played down those concerns.
Reuters is reporting:
“Russian forces on Tuesday struck back at Ukrainian troops with missiles, drones and airstrikes in actions that one senior commander said had halted Ukraine’s advance after the biggest attack on sovereign Russian territory since the war began.
Ukrainian soldiers smashed through the Russian border a week ago in a surprise attack that Russian President Vladimir Putin said was aimed at improving Kyiv’s negotiating position ahead of possible talks and slowing the advance of Russian forces along the front.”
Of course, the International Energy Agency report doesn’t make us feel too comfortable that the world will be able to handle a war and keep the global markets supplied. Once again the International Energy Agency's prediction demand has proven to be incorrect.
The IEA said that “global oil demand increased by 870 kb/d in 2Q24, with a contraction in China limiting gains. Demand is set to rise by less than 1 mb/d in both 2024 and 2025.
This is largely unchanged from last month’s report and far slower than last year’s 2.1 mb/d growth as comparatively lackluster macroeconomic drivers come to the fore.
World supply rose 230 kb/d to 103.4 mb/d in July as a substantial OPEC+ increase more than offset losses from non-OPEC+. Annual gains accelerate from 730 kb/d in 2024 to 1.9 mb/d in 2025. Non-OPEC+ production increases by 1.5 mb/d this year and next, while OPEC+ may fall by 760 kb/d in 2024 but rise by 400 kb/d in 2025 if voluntary cuts stay in place.
Global refinery throughputs are forecast to increase by 840 kb/d to 83.3 mb/d in 2024, and by 600 kb/d to 83.9 mb/d next year. Margin weakness continues to weigh on processing rates, with Chinese runs now expected to decline YoY.
Margins fell further in July in Europe but rose in Singapore and on the US Gulf Coast, led by stronger naphtha and gasoline cracks.
This comes as Quantum Energy reported that crude oil continued to rally into a fifth session at the start of the week as US recession fears waned and the focus shifted back to Middle East geopolitical risks, shaking off expectations of falling demand in China from OPEC.
Recession fears have been played out after the weak jobs report and the manic stock market, but this inflation data today may give the market more of an indication as to whether the Fed has enough cover to cut interest rates. More than likely they probably do.
Natural gas had a nice pop. Inventories could see its first supply withdrawal this summer. Expectations of three BCF withdrawals are making the rounds.