Standard Chartered: Oil Demand Isn’t as Bearish as You May Think23 Aug 2024 06:46
By Alex Kimani for Oilprice.com Aug 21, 2024
Standard Chartered: Oil Demand Isn’t as Bearish as You May Think
Commodity analysts at Standard Chartered have been able to gauge crude demand on a global scale following the release of Joint Oil Data Initiative (JODI) data on 19 August.
According to StanChart, global oil demand in the month of June clocked in at a healthy 103.01 million barrels per day (mb/d), an all-time high. Following JODI revisions, StanChart estimates that May demand came in at 102.68 mb/d, the second-highest monthly average after June. The average demand growth for the second quarter was 1.521 mb/d y/y, close to StanChart's forecast for 2024 full-year growth (1.514 mb/d).
The only bearish data point in that report is that demand growth has been slowing, with June demand growth clocking in at 788 thousand barrels per day (kb/d), a deceleration from 1.267 mb/d in May and 2.129 mb/d in April. StanChart has predicted that global demand will remain above 103 mb/d for the rest of 2024, before falling to 101.9 mb/d in January due to seasonality.
Meanwhile, global crude supply growth remains muted, with June supply increasing by 160 kb/d m/m to 102.097 mb/d, well below December 2023's all-time high of 103.162 mb/d.
Constrained global supply growth can largely be chalked up to weak non-OPEC growth, particularly by the U.S. Oil production in the United States is set to grow just 2.3% in the current year as shale producers stick to production discipline and goal to return capital to shareholders. Crude exports from U.S. ports have averaged 4.2 million barrels per day so far this year, up a mere 3.5% Y/Y compared to a robust 13.5% growth in 2023. This year's growth clip is the lowest since 2015, when the country lifted a 40-year federal ban on the export of domestic crude.
U.S. shale producers are simply not willing to drill more. High decline rates for shale wells usually sets in soon after commissioning, meaning extra well completions are required to offset declines from existing wells if output is to be maintained. Earlier in the year, StanChart reported that the horizontal rig count started to decline sharply in early 2023 and is currently 20% below its post-pandemic peak after flatlining for the past six months. The analysts point out that whereas the completion of previously drilled wells and technical change provide an offset, a significant fall in activity, more often than not, leads to a lagged decline in growth.
Last month, the U.S. Energy Information Administration predicted that U.S. natural gas prices will rally strongly in the second half of the current year thanks to production cuts. According to the EIA, the Henry Hub natural gas spot price will average almost $2.90 per million British thermal units (MMBtu) in 2H24, up from $2.10/MMBtu in 1H24, good for a nearly 40% increase.
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