Healthy demand growth for fuel not only in emerging economies led by China and India, but also in Europe, is helping global inventories to draw down faster now, keeping the oil market on the right track towards rebalancing, according to industry executives who spoke at a conference on Tuesday.
“We see the market over the next six months going well above $60 for a simple reason … surprisingly good demand,” Adi Imsirovic, Head of Oil Trading at Gazprom Marketing and Trading, said at the S&P Global Platts APPEC conference in Singapore, as quoted by Reuters.
Global demand growth is “coming somewhere close to 1.6 to 1.7 million barrels per day and is driven by distillates,” BP’s Regional CEO for Supply and Trading for the Eastern Hemisphere, Janet Kong, said at the conference.
Diesel demand surged after Hurricane Harvey knocked offline more than 20 percent of U.S. refinery capacity at the peak of shutdowns, but demand was strong even before the storm, according to executives and analysts.
“What Harvey did is accelerate a process that was already underway,” Reuters quoted Robert Campbell, head of oil products analysis at Energy Aspects, as saying.
According to Mike Muller, Vice President of Crude Trading & Supply at Shell Trading, the soaring diesel fuel demand and the buying of crude oil to fill strategic reserves have been the key drivers of this year’s higher oil demand growth.
Earlier this month, the International Energy Agency (IEA) revised upwards its forecast for oil demand growth this year to 1.6 million bpd from the previous estimate for 1.5 million bpd growth.
The expected strong demand growth, coupled with OPEC’s production cuts, is making oil analysts and traders at the Singapore conference more bullish this year than at the same event last year, according to Bloomberg. But experts warn that OPEC needs to extend the cuts beyond March 2018 in order to continue depleting crude oil stockpiles.
The outlook for the rest of this year looks bullish, but the market will be put to the real test in March 2018, when demand will be seasonally lower. Oil prices are unlikely to keep a sustainable level above US$60 because U.S. shale supply would rapidly increase, effectively capping prices, oil traders tell Bloomberg.