Agencies
London
Morgan Stanley has lowered its global oil demand growth forecast for 2024, mainly due to China’s slower economic growth, increased electric vehicle usage there, and a rise in the number of trucks in China powered by liquefied natural gas (LNG).
The bank cut its global oil demand growth forecast for this year to 1.1 million barrels per day (mbpd) from 1.2 mbpd.
It also lowered its Brent price forecasts modestly and sees prices averaging $80 per barrel in the fourth quarter of 2024 compared to $85 per barrel previously.
Brent crude was trading around $78 a barrel by 1221 GMT on Friday, and US West Texas Intermediate crude futures were at $74.52.
The shift to LNG trucks has cut China’s oil demand growth by 100-150 thousand barrels per day (kbd), while gasoline displacement by EVs has reduced it by about 100 kbd, Morgan Stanley analysts said in a note dated August 22.
Additionally, growth in petrochemical capacity expansion - which boosts LPG, ethane, and naphtha consumption - has slowed due to low petrochemical margins, the note said.
The note chimes with last week’s cut by the Organization of the Petroleum Exporting Countries (OPEC) in its oil demand growth forecast for this year and 2025, also citing softness in China.
For now, the balance in the oil market is tight, with inventories being drawn down by about 1.2 million barrels per day in the last four weeks, a trend which is expected to continue for the rest of the third quarter, Morgan Stanley said.
"However, with demand set to slow after summer, and both OPEC and non-OPEC supply to increase from the fourth quarter, we foresee a softening balance, turning to surplus in 2025,” it added.
In the short term, Brent prices have declined ahead of the underlying market fundamentals, the bank said, adding it expects Brent to be anchored around $75 per barrel this time next year.
Meanwhile, US energy firms this week cut the number of oil and natural gas rigs operating for a second week in a row for the first time since late June, energy services firm Baker Hughes said in its closely followed report on Friday.
The oil and gas rig count, an early indicator of future output, fell by one to 585 in the week to August 23, Baker Hughes said that puts the total rig count down 47, or 7 percent below this time last year.
Baker Hughes said oil rigs were unchanged at 483 this week, while gas rigs fell byone to 97. The oil and gas rig count dropped about 20 percent in 2023 after rising by 33 percent in 2022 and 67 percent in 2021, due to a decline in oil and gas prices, higher labor and equipment costs from soaring inflation and as companies focused on paying down debt and boosting shareholder returns instead of raising output.
US oil futures were up about 5 percent so far in 2024 after dropping by 11 percent in 2023, while US gas futures were down about 19 percent so far in 2024 after plunging by 44 percent in 2023.
That increase in oil prices should encourage drillers to boost US crude output from a record 12.9 million barrels per day (bpd) in 2023 to 13.2 million bpd in 2024 and 13.7 million bpd in 2025, according to the latest US Energy Information Administration (EIA) outlook.