Bank of America’s report warns of a potentially turbulent year for oil markets due to slowing global demand growth and rising inventories, which could pressure prices if these trends continue. While OPEC+ cuts and a seasonal demand increase in the third quarter might stabilize prices, the debate over “peak oil demand” adds long-term uncertainty, with the IEA predicting a peak in 2029 and Capital Economics forecasting a rapid decline post-2030. Market dynamics remain highly uncertain, influenced by factors such as regulatory changes and geopolitical developments.
The recent report from Bank of America (BofA) suggests that the oil markets could face a turbulent year. Here’s a summary of the key points:
- Decline in Global Oil Demand: BofA’s commodity research team reported that global oil demand growth slowed to 890,000 barrels per day in Q1, with further deceleration expected in Q2.
- Rising Inventories: Since mid-February, oil inventories have increased by 1.7 million barrels per day. Both supply growth and demand decline contribute to this surplus.
- Regional Demand Trends: Demand is falling in both OECD and non-OECD countries. Specifically, U.S. gasoline demand decreased by 230,000 barrels per day in Q2.
- Price Predictions: While consensus forecasts suggest a potential increase in oil prices in Q3, BofA remains cautious. The market needs to shift from surplus to deficit for prices to rise, and this is uncertain.
- OPEC+ Influence: Extended OPEC+ cuts could stabilize the market if compliance remains high and demand increases in Q3. However, continued inventory growth could pressure petroleum prices and refinery margins, particularly in the Atlantic Basin.
- Long-Term Demand Concerns: The debate over “peak oil demand” has resurfaced, with the International Energy Agency (IEA) predicting a peak in 2029. OPEC disagrees, calling such forecasts dangerous.
- Capital Economics’ View: Capital Economics suggests that the critical issue is not the peak itself but how quickly demand declines post-peak. Their forecast indicates a peak around 2030, followed by a rapid decrease.
- Market Uncertainties: Minor changes, such as the EU’s tariffs on Chinese EVs, can significantly impact oil demand forecasts. The IEA’s previous predictions of an oil supply crunch that didn’t materialize illustrate the uncertainties in these projections.
The ongoing debate over oil demand and supply dynamics underscores the complexities and uncertainties facing the oil market. These factors will likely continue to shape market conditions and influence strategic decisions by oil companies.
