Bullish Oil Demand Growth Forecasts from the International Energy Agency

Recap:  The oil market traded mostly sideways in overnight trading before it rallied higher on bullish oil demand growth forecasts from the International Energy Agency. The IEA raised its oil demand growth forecast for this year by 200,000 bpd to 2.4 million bpd. The market extended its previous gains and posted a high of $70.49 early in the session. However, the market gave up its gains on an unexpected large build in crude stocks. The market, which had retraced over 32% of its move from a high of $75.06 to a low of $66.80, erased those gains and sold off to a low of $68.62 by mid-day following the EIA report showing a build in crude stocks of close to 8 million barrels. The market later settled in a sideways trading range before the market was further pressured ahead of the close on the Fed decision. The July WTI contract settled down $1.15 at $68.27 and the August Brent contract settled down $1.09 at $73.20. The product markets settled down, with the heating oil market settling down 3.78 cents at $2.3577 and the RB market settling down 33 points at $2.5546.

Technical Analysis:  The oil market is seen remaining in its recent trading range from about $66.80 to $75, as the market weighs the increased oil demand growth forecast against the Fed statement that further rate increases may still occur by the end of the year after it left rates steady for now. The market is seen finding resistance at its high of $70.49, $70.93, $71.77 and $71.90. More distant resistance is seen at $73.28 and $75.06. Meanwhile, support is seen at its low of $68.07, $67.15, $66.80 and $63.64.

Fundamental News:  According to the EIA, U.S. crude oil inventories posted an unexpected large build in the week ending June 9th. Crude oil inventories increased by 7.9 million barrels on the week. U.S. crude oil stocks in Cushing, Oklahoma increased by 1.6 million barrels on the week to 42.1 million barrels, the highest level since June 2021. The EIA also reported that U.S. crude oil stocks in the SPR fell by 1.9 million barrels to a new four-decade low of 3.52 million barrels in the week ending June 9th.

The International Energy Agency said the increase to oil demand growth from the post-pandemic recovery is set to end this year, with economic challenges and the transition to cleaner fuels cutting growth from 2024. In its monthly report, the IEA said global oil demand will grow by 2.4 million bpd in 2023 to a record 102.3 million bpd. However, the agency expects economic headwinds to reduce growth to 860,000 bpd next year and increasing use of electric vehicles to help to reduce that to 400,000 bpd in 2028 for overall demand of 105.7 million bpd. Oil demand is expected to increase by 6% between 2022 and 2028. The IEA also stated that upstream oil investment exceeds the amount need in a world on track for net zero emissions. The IEA also stated that global oil supply fell by 660,000 bpd to 100.6 million bpd in May after additional cuts by some OPEC+ producers.

JP Morgan lowered its Brent oil price forecast for 2023 to $81/barrel from $90/barrel and its WTI price forecast to $76/barrel from a previous estimate of $84/barrel. It also lowered its 2024 price forecasts for Brent to $83/barrel from a previous estimate of $98/barrel and for WTI to $79/barrel from a previous forecast of $94/barrel. It said world oil demand is set to increase by 2.2 million bpd to average 101.4 million bpd this year, a new record high and almost 1 million bpd above the 2019 level. The increase in demand will be led by China, India and the Middle East. It stated that even with OPEC’s 1.16 million bpd cuts extended into 2024, it sees a surplus of 400,000 bpd next year. The bank expects output from Venezuela, Nigeria and Iran to be about 600,000 bpd higher than its previous projections.

Early Market Call - as of 8:30 AM EDT

WTI - July $68.97, up 70 cents

RBOB - July $2.5795, up 2.49 cents