LONDON- A push to replenish depleted oil stocks notably in China, the United States and Europe could buoy demand and prices in coming months, analysts and traders said, as tensions in the Middle East threaten key shipping lanes.
Heavily depleted by supply disruptions wrought by sanctions on Russia in the middle of 2022, as well as protracted OPEC+ output cuts, global oil inventories have barely recovered with traders unable to justify the costs for storing oil.
Shipping disruption in the Red Sea due to escalating attacks by Iran-aligned Houthi rebels has increased concerns about supply, spurring buyers to rebuild inventories.
Morgan Stanley raised its quarterly outlook for Brent crude prices on Tuesday to an average of $82.50 a barrel in the first and second quarters – compared with $80 and $77.50 previously – suggesting the bank now expects a tight oil market this year.
Consultants FGE said that available data so far this year has shown a large counter seasonal fall in crude and fuel stocks of almost 29 million barrels, compared with a typical average build of 20 million barrels during January in 2015-2019.
Energy watchdog the International Energy Agency said global inventories had slipped by 8.4 million barrels last November – the last month for which full data exists – to the lowest since July 2022, but that preliminary December data indicated a rise.
Traders say they have so far seen strong buying from China, Europe and the United States.
“Chinese buying is high as it restocks in the first half”, a trader for a European refiner told Reuters. “US and European buying is also stronger this month as the situation for barrels from East of Suez could get much worse at any time.”
The Chinese are buying heavily oil arriving this spring to replenish stocks while the United States is gradually topping up its Strategic Petroleum Reserve after selling a record amount from the government oil stores in 2022.
“In terms of days of demand cover (from oil storage), we expect the market to get to around 67 days by year end 2025 from current 64 days, which is still above pre-pandemic levels of around 60 days, assuming OPEC+ keeps cuts in place through 1H25.” Citi energy strategist Francesco Martoccia told Reuters.
The Organization of the Petroleum Exporting Countries and allies like Russia (OPEC+) have sought to rein in supply with output cuts to buoy prices since 2022.
OPEC on Tuesday stuck to its forecast for relatively strong growth in global oil demand in 2024 and 2025 and raised its economic growth forecasts for both years saying there was further upside potential.
In a monthly report, OPEC said world oil demand will rise by 2.25 million barrels per day (bpd) in 2024 and by 1.85 million bpd in 2025. Both forecasts were unchanged from last month.
A further boost to economic growth could give additional tailwind to oil demand. OPEC’s 2024 demand growth forecast is already higher than that of other forecasters such as the International Energy Agency, although the wider OPEC+ alliance is still cutting output to support the market.
OPEC said a “positive trend” for economic growth was expected to extend into the first half of 2024 and raised its economic growth forecasts for 2024 and 2025 by 0.1 percentage points.
“Global economic growth remains robust,” OPEC said in the report. “Further upside potential could materialize in all major OECD and non-OECD economies.”
Oil prices have found support in 2024 from conflict in the Middle East and supply outages, although concerns about continued high interest rates have weighed. Brent crude on Tuesday was trading around $82 a barrel, up 0.5 percent
A rise in prices last month stemmed from a range of factors including easing speculative selling pressure, supply disruptions, stronger-than-expected macroeconomic data and signs of robust oil market fundamentals, OPEC said.
