Demand Surge Set To Push Oil Prices Higher This Year
Authored by Tsvetana Paraskova for Oilprice.com
Brent oil prices have found a new higher floor at above $80 per barrel in recent days as the market starts to believe in fundamentals while looking out for signs of a recession.
As supply is tightening due to the OPEC+ cuts and a slowdown in U.S. shale production growth, demand is robust and likely to further strengthen during the third quarter with peak driving season and strong consumption in the two leading Asian crude importers, China and India, analysts say.
That’s not to say that fears of recessions aren’t influencing the market. On the contrary, participants continue to weigh the likelihood of a material downturn in the U.S. and Europe against expectations of a tightening market and large supply deficits through the end of the year.
But the evidence of tight supply-demand balances that the market needed may finally be here. While demand has already returned to pre-pandemic levels and set a record annual average this year, supply is having trouble keeping up, setting the stage for higher oil prices in the second half of this year, according to Joseph McMonigle, Secretary General of International Energy Forum (IEF), the world’s largest international organization of energy ministers.
Demand is rising, and the market will see massive inventory draws beginning this quarter and lasting through next year, McMonigle told CNBC in an interview this weekend.
“So, for the second half of this year, we’re going to have serious problems with supply keeping up, and as a result, you’re going to see prices respond to that,” McMonigle told CNBC on the sidelines of G20 energy ministers meeting in India.
China and India, the world’s largest and third-largest oil importers, respectively, will be the key drivers of rising oil demand, he added. Combined, India and China are expected to account for 2 million barrels per day (bpd) of demand increase in the second half of this year, according to McMonigle.
“We’re going to see much more steep decreases in inventory, which will be a signal to the market that demand is definitely picking up. So you’re going to see prices respond to that,” he told CNBC. In case of demand exceeding expectations and tightening the market too much, OPEC+ producers could move to unwind some of the current cuts, the IEF secretary general noted.
