Market Banks Heavily on Demand Boom

Much is riding on global oil demand booming in the second half of 2023. Year-to-date demand has barely risen, meaning robust annual demand growth predictions — ranging from Energy Intelligence's 1.5 million barrels per day forecast to Opec's 2.3 million b/d prediction — are mostly backloaded to the latter half of the year. Whether this demand growth materializes might be the biggest question in oil markets today. Oil is now taking its cues from macroeconomic signals that suggest bullish demand growth is not guaranteed. Central bank interest rate hikes, a mini-crisis in the banking sector, and mounting debt problems in the US and China — the world's two largest oil consumers — have been weighing on oil prices lately. Benchmark Brent has shed $10 per barrel in four weeks and is struggling to stay over $75/bbl despite recent Opec-plus supply cuts. Energy Intelligence balances show that the world was consuming 99.4 million b/d of oil at the end of the first quarter, unchanged from the 2022 average. As inflation persists, aggressive rate hikes by central banks have already dragged OECD demand into destruction territory and increasingly numbed the market from Opec supply decisions. The US Federal Reserve is curbing demand for some goods — including oil — faster than Opec-plus curtails supply. The Fed must use rate hikes to fight inflation, but this has contributed to the banking scare and threated financial stability. Multiple economic indicators still point to demand softness. Lower refining margins have raised doubts over the strength of demand, even if they partly reflect subdued crude intake due to seasonal spring maintenance.