Oil Market Report - May 2024

• Global oil demand is set to rise by 1.1 mb/d in 2024, 140 kb/d less than projected in last month’s Report as weak deliveries, notably in Europe, shifted first-quarter OECD demand into contraction. The outlook for 2025 is comparatively unchanged, with the pace of growth now marginally surpassing 2024 at 1.2 mb/d.
• World oil supply is projected to increase by 580 kb/d this year to a record 102.7 mb/d as non-OPEC+ output rises by 1.4 mb/d while OPEC+ production falls 840 kb/d, assuming that voluntary cuts are maintained. Global gains of 1.8 mb/d are expected in 2025 as non-OPEC+ adds a further 1.4 mb/d. In April, world oil supply fell 200 kb/d to 102 mb/d.
• Global refinery margins eased across all regions in April, as weaker-than-expected demand growth underpinned a collapse in middle distillate cracks and lower throughput levels. Annual growth in refinery activity is forecast to accelerate from just above zero in 1Q24 to 500 kb/d in 2Q24 and to 1.8 mb/d in 2H24.
• Global oil inventories surged by 34.6 mb in March, as oil on water swelled to a fresh post-pandemic high. On land stocks fell by 5.1 mb to their lowest level since at least 2016, as total OECD stocks declined by 8.8 mb to a 20-year low while non-OECD inventories built for the first time since November. According to preliminary data, global oil stocks rose further in April.
• Brent futures eased from a six-month high above $91/bbl in early April to around $83/bbl as concerns about a wider Middle East conflict subsided and softer macro sentiment weighed on prices. Amid heavy investor selling and weak demand, middle distillates led the decline, as the diesel forward curve slipped into contango after years of backwardation and cracks fell to one-year lows.
  

Benchmark oil prices corrected sharply lower over the course of April and early May, as concerns over the health of the global economy and oil demand fuelled a sell-off. Reports of progress towards a truce in Gaza also weighed on oil prices, although geopolitical tensions remain high. Brent crude futures traded at around $83/bbl at the time of writing, down nearly $8/bbl from a month earlier despite signs of tightness in the crude oil market.

The spring sell-off was most notable in middle distillate markets, as diesel and jet fuel cracks collapsed while the NYMEX ULSD front-month contract flipped into contango after years of backwardation. In the process, global refinery margins fell to near two-year lows, spurring talks of run cuts that could undermine the seasonal rebound in throughput rates. The slump in European refinery margins in April outpaced those seen in the US Gulf Coast and Singapore, reflecting its heavy reliance on diesel output and weak regional demand eroding the premium needed to attract long-haul imports from East of Suez.

Poor industrial activity and another mild winter have sapped gasoil consumption this year, particularly in Europe where a declining share of diesel cars in the fleet were already undercutting consumption. Following a 210 kb/d annual contraction in 2023, European gasoil demand declined by another 140 kb/d y-o-y in 1Q24. Combined with weak diesel deliveries in the United States at the start of the year, this was enough to tip OECD oil demand in the first quarter back into contraction. Global oil demand is now expected to rise by 1.1 mb/d in 2024, 140 kb/d less than projected in last month’s Report. Our global outlook for 2025 is largely unchanged, with the pace of growth now marginally eclipsing 2024 at 1.2 mb/d.

The health of global oil demand will likely be a key topic for discussion when OPEC+ ministers meet in Vienna on 1 June to chart production policy for the remainder of the year. Despite the recent weakness, our current balances show the call on OPEC+ crude oil at around 42 mb/d in the second half of this year – roughly 700 kb/d above its April output.

Next year, the market looks more balanced overall. Even if OPEC+ voluntary production cuts were to stay in place, global oil supply could jump by 1.8 mb/d compared with this year’s more modest 580 kb/d annual increase. Non-OPEC+ output is forecast to expand by 1.4 mb/d in both years, while OPEC+ output flips from an 840 kb/d decline this year to growth of 330 kb/d in 2025. The United States, Guyana, Canada and Brazil continue to dominate gains, even as the pace of the US supply expansion decelerates.

The June meeting may also look closely at global oil inventories as a gauge for the delicate balancing act of world oil demand and supply. Preliminary data show further stock builds in April as onshore inventories skyrocketed after oil on water was discharged. Increasing trade dislocations had pushed oil on water to a post-pandemic high in March, while onshore stocks were at their lowest since at least 2016. A return to historical average stock levels will be key to avoid renewed market volatility.