Oil prices surged in early trading today, with the ICE Brent front-month contract surpassing $81/bbl after the American Petroleum Institute (API) reported a significant decline in oil inventories. If confirmed by the Energy Information Administration (EIA), this would mark the seventh consecutive weekly drop in inventory levels. Geopolitical tensions in the Middle East are also driving up prices, as uncertainty surrounding potential Iranian reactions to Israel escalates, according to ING’s commodity strategists Ewa Manthey and Warren Patterson.
Global Supply Expected to Rise by 730k b/d in 2024
The API revealed a substantial 5.2 million barrel decrease in US crude oil inventories last week, far exceeding market expectations of a 0.9 million barrel draw. Inventories at Cushing also declined by 2.3 million barrels. While gasoline stocks fell by 3.7 million barrels, distillate inventories saw a modest increase of 612k barrels. Investors are eagerly awaiting the EIA inventory report later today for further confirmation.
On the demand side, the International Energy Agency (IEA) recently adjusted its growth forecasts, anticipating a rise of 950k b/d in global oil demand for 2025, down 30k b/d from previous projections due to weaker Chinese consumption. However, demand estimates for 2024 remain unchanged at 970k b/d. In contrast, OPEC has also revised its demand forecasts downwards for this year and the next, highlighting discrepancies with the IEA’s outlook.
Looking ahead, the IEA projects a 730k b/d increase in global oil supply for 2024 and a further 1.9m b/d rise in 2025 as OPEC+ gradually reintroduces supply to the market. Non-OPEC+ production is expected to grow by 1.5m b/d in both 2024 and 2025.
Analysis and Implications
The rebound in oil prices and tightening inventory levels suggest a bullish outlook for the market, driven by geopolitical risks and supply-demand dynamics. Investors should monitor EIA data closely for confirmation of the API report and remain vigilant regarding potential disruptions in the Middle East. The divergence in demand forecasts between the IEA and OPEC underscores uncertainty in the market, posing challenges for future price movements. Overall, the current trends indicate a volatile yet promising landscape for oil investments, with implications for global energy markets and consumer prices.