Oil Market Report - June 2024

• World oil demand growth continues to slow, with 2024 gains now seen at 960 kb/d, 100 kb/d below last month’s forecast. Weak OECD deliveries pushed global demand into a narrow y-o-y contraction in March. Subpar growth of 1 mb/d in 2025 is held back by a muted economy and accelerating clean energy technology deployment.
• Global oil supply rose by 520 kb/d in May to 102.5 mb/d, as Brazilian ethanol output surged seasonally. For the year as a whole, production increases by 690 kb/d, led by non-OPEC+ gains of 1.4 mb/d. OPEC+ supply falls by 740 kb/d if voluntary cuts are maintained. In 2025, global supply is forecast to rise by 1.8 mb/d, as non-OPEC+ output increases by 1.5 mb/d.
• Refining margins in Asia retreated to three-year lows in May and are now close to run cut territory. US Gulf Coast refining profitability slipped back to six-month lows but remains above European levels. 2024 and 2025 crude runs forecasts are 100 kb/d higher than last month’s Report, at 83.5 mb/d and 84.2 mb/d, respectively. Stronger OECD 2Q24 throughputs outpaced still-weak Chinese runs, which slumped to Covid-era lows in April.
• Global observed oil inventories built by 19.3 mb in April. On land stocks surged by 83.5 mb after eight-months of draws, while oil on water plunged by 64.2 mb following 112.6 mb of increases in the previous two months. OECD industry stocks rose by 32.1 mb, its first monthly increase since October. Preliminary data suggest a further 48.2 mb build in May.
• Brent crude futures fell by $6/bbl in May as inventory builds pointed to a comfortably supplied Atlantic Basin market. Prices slid another $4/bbl after the 2 June OPEC+ meeting, with traders taking a bearish view of the gradual unwinding of last year’s voluntary output cuts. Oil’s price structure weakened in parallel, with front-month spreads briefly slipping into contango. At the time of writing, Brent was trading at around $81.50/bbl.
  

Brent crude futures continued to slide in May and early June, as flagging oil demand growth and inventory builds pointed to a comfortably supplied market. Brent futures fell by $6/bbl in May, before tumbling further in early June after the OPEC+ alliance announced plans to gradually unwind last year’s extra voluntary output cuts starting in 4Q24. Traders’ initial response was overwhelmingly bearish, with prices falling to a low of around $77.50/bbl, but OPEC+ officials quickly reiterated that a rollback of output reductions will be contingent on market conditions. At the time of writing, Brent had rebounded to $81.50/bbl – still about $11/bbl below early April’s 2024 highs.

In May, global observed onshore oil inventories swelled for a second consecutive month as lacklustre demand met with robust oil supply. Preliminary, albeit incomplete, data show oil stocks rising by 48.2 mb last month, led by the United States and China. The increase comes on top of a 19.3 mb build in April, when on-land stocks surged by 83.5 mb after eight months of draws. Oil on water plunged by 64.2 mb, however, partly reversing the 112.6 mb increase seen over the previous two months. OECD industry inventories rose in by April 32.1 mb, largely in line with seasonal trends, but remained 94.7 mb below their five-year average.

These stock builds come amid continued oil demand slowdowns in key markets, most notably the OECD. US and European data undershot expectations as exceptional gasoil weakness aligned with challenging industrial conditions. Overall annual gains in March of 650 kb/d for non-OECD countries failed to offset the 815 kb/d contraction in the OECD, resulting in an overall decline in demand of 165 kb/d year-on-year. Preliminary data for April and May point to further weakness, with Chinese demand growth slumping from 800 kb/d on average in 1Q24 to only 95 kb/d in April. As a result, we have adjusted lower our expectations for 2024 global oil demand growth by a further 100 kb/d to 960 kb/d. Oil’s subdued outlook is expected to carry forward into 2025, with a modest increase of 1 mb/d reflecting lacklustre economic growth, an expanding EV fleet and vehicle efficiency gains.

The latest bout of demand weakness shows up in refining margins in Asia and the United States, which retreated to three-year lows in May. Singapore margins are close to, if not already in, run cut territory, with gasoline cracks particularly weak. By contrast, Europe is hanging onto recent strength more effectively, as jet/kerosene cracks improved. Meanwhile, Chinese refinery runs slumped to Covid-era levels in April and an 8.7% y-o-y decline in Chinese crude oil imports in May suggest subdued runs again last month.

As for supply, OPEC+ has laid out a roadmap for unwinding extra voluntary supply reductions of up to 2.2 mb/d from 4Q24 through 3Q25. Given the bloc’s assurances that the production increase can be paused or reversed subject to market conditions, we will adjust our OPEC+ supply numbers when such a decision is confirmed. On that basis, global oil supply looks set to rise by 690 kb/d on average this year, led by a 1.4 mb/d increase from non-OPEC+ countries. Next year could see gains of 1.8 mb/d in total, with non-OPEC+ up 1.5 mb/d and OPEC+ 320 kb/d higher. With oil demand expected to remain weak, supplies may have to be adjusted lower next year, rather than higher.