— This is the script of CNBC's news report for China's CCTV on March 15, 2024.
These past two days, oil prices have finally broken out of their continuous decline and have shown an upward trend, Overnight, the oil prices rose for the second consecutive day, reaching a four-month high.
On Thursday, WTI crude futures rose by 1.93%, closing at $81.26 per barrel, while London Brent crude oil closed at $85.42 with a 1.65% increase. Both reached their highest since early November of last year. The main reason for such an increase is that the International Energy Agency (IEA) has raised its expectations for oil demand growth in 2024 for the fourth time since November.
According to the IEA's forecast, the growth in oil demand this year is 1.3 million barrels per day, an increase of 110,000 barrels per day from the previous month's forecast. The IEA stated that the reason for the upward adjustment is mainly due to frequent attacks by the Houthi attacks in the Red Sea, which have forced ships to divert and increase fuel consumption. The report said that due to the diversion of ships, maritime fuel consumption soared to nearly 1.9 billion barrels as of end-February, the second-highest level since the peak of the COVID-19 pandemic.
At the same time, the IEA also lowered its supply expectations for this year, expecting OPEC+'s production cuts to continue into the second half of this year. Therefore, the global oil market will face a supply shortage this year instead of the previously expected oversupply.
It is also noteworthy that on Mar 13, the US Energy Information Administration reported unexpected decreases in US crude oil and gasoline inventories. The amount of crude oil and gasoline extracted from inventories by energy companies exceeded market expectations, indicating changes in the market's supply and demand dynamics. Additionally, recent attacks by Ukrainian drones on several major refineries in Russia, causing production interruptions, have also prompted a surge in prices.
On CNBC's show, Martijn Rats from Morgan Stanley warned that we may see a surge in oil prices this summer. The main reason is that the supply-demand pattern has changed. On the demand side, the market has been very cautious since the beginning of the year, but now oil demand data has been continuously adjusted upward. On the supply side, inventories of oil-producing countries outside OPEC+ have not increased as the market expected.
Martijn Rats
Chief commodities strategist at Morgan Stanley
"On the supply side, we see we're seeing a slowdown in US shale, we've seen a wobbly start in Brazil, we've seen a wobbly start in Canada, we expected inventories to build but the year to date, they are kind of flat in the first quarter inventories can be can be flat, then they can draw possibly quite significantly during the summer period. I think the summer could be tighter than people expect."
Some analysts also point out that the Air travel demand will also push up oil prices in the summer. With the ongoing crisis in the Red Sea, aviation fuel shipments from the Middle East to Europe have been affected. Although it is currently the off-peak season for demand, analysts suggest that the summer, being the peak travel season, may also push oil prices higher.
Amrita Sen
Founder of Energy Aspects
"Summer jet is kind of ahead of us. And we think these attacks are going to go on for months, so we could see some really elevated prices into the summer."
Another risk that could lead to a downward trend in oil prices is the expectation of a rate cut by the Federal Reserve. Typically, a rate cut by the Fed stimulates oil demand, but if the Fed keeps rates higher for longer, it will put pressure on oil prices. This week, both the US CPI and PPI have shown that inflationary pressures in the US persist. Therefore, the market is also focusing on how Jerome Powell will address the timing of a rate cut at the Fed's meeting next week.
The market is now paying attention to the OPEC+ ministerial meeting scheduled to be held at the organization's headquarters in Vienna this June, at which point we will also know whether production cuts will continue into the second half of the year.