Investing,com -- Recent monthly reports from official energy agencies reveal a softer outlook for global oil demand, even as geopolitical tensions continue to simmer.
As per analysts at Citi Research in a note dated Wednesday, Brent oil prices have recently eased from highs of $82 to around $80 per barrel, reflecting a temporary recovery following a broader market sell-off earlier in August.
This market correction was primarily triggered by escalating recession fears, overshadowing other potential destabilizing factors. These included geopolitical tensions such as the Iran-Israel standoff, internal unrest in Libya, and the ongoing hurricane season, which posed a threat to supply chains through the end of the year.
The latest reports from the Energy Information Administration (EIA), the International Energy Agency (IEA), and the OPEC Secretariat indicate a more cautious outlook for oil demand growth in 2024 and 2025.
The IEA has maintained its projection for oil demand growth at just under 1 million barrels per day (b/d) for both years, having already revised down its forecasts in June. The EIA, in its August Short-Term Energy Outlook (STEO), left its 2024 global oil demand growth forecast unchanged at 1.1 million b/d but revised down the 2025 growth estimate by 0.2 million b/d due to a weaker economic outlook.
On the supply end, the IEA anticipates significant increases in non-OPEC+ production, with a projected rise of 1.3 million b/d in 2024 and 1.8 million b/d in 2025. This growth, led by the United States, Brazil, Guyana, and Canada, is expected to more than meet global oil demand increases for the next two years.
The IEA also predicts a shift from a deficit in the second half of 2024 to stock builds beginning in the first quarter of 2025 as OPEC+ resumes bringing additional barrels to market.
In contrast, OPEC's recent monthly oil market report continues to project tight market conditions, with an implied deficit of 1.9 million b/d in 2024 and 1.7 million b/d in 2025, despite revising down its global oil demand growth forecast for the first time this year.
OPEC's higher demand baselines of 104.2 million b/d in 2024 and 106.1 million b/d in 2025 suggest that its outlook remains more bullish than that of other agencies.
Speculative positioning in the ICE (NYSE:ICE) Brent complex has struggled in August, with geopolitical risk rallies failing to sustain a structurally bullish sentiment. The ratio of Brent Managed Money (MM) gross longs to gross shorts has fallen to historic lows, indicating a market vulnerable to short-covering activity and headline risks.
Implied volatility has increased in August, with the spread between implied and realized volatility widening, reflecting a market more sensitive to sudden shifts in sentiment.
The latest weekly data from the EIA shows a mixed picture. U.S. commercial crude oil inventories built by 1.4 million barrels to 430.7 million barrels, while gasoline and distillate inventories fell, indicating some resilience in refined product demand.
However, gasoline demand remains below pre-pandemic levels, and jet fuel demand is still lower than 2019 figures, underscoring the challenges in achieving a full recovery in oil consumption.
Citi Research analysts suggest that while the immediate outlook for oil demand growth is subdued, the market remains susceptible to fluctuations driven by both economic and geopolitical developments.