Oil nudges higher on hopes of summer fuel demand

Oil prices edged up on Monday, buoyed by hopes of rising fuel demand this summer, though gains were capped by a strengthening of the dollar on receding expectations of imminent cuts to US interest rates.

Goldman Sachs analysts expect Brent to rise to $86 a barrel in third quarter, saying in a report that solid summer transport demand will push the oil market into a third-quarter deficit of 1.3 million barrels per day (bpd).

Brent crude futures gained 28 cents, or 0.4%, to $79.90 a barrel by 0815 GMT. US West Texas Intermediate crude futures were up 36 cents, or 0.5%, at $75.89.

“We believe current market positioning is overly pessimistic, considering that we expect larger oil inventory declines over the next few weeks,” UBS analysts said in a report. Oil last week posted a third straight weekly loss on concerns that a plan to unwind some production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, from October will add to rising supply. Despite the OPEC+ cuts, oil inventories have risen.

US crude stocks rose in the latest week, as did gasoline stocks. Energy consultancy FGE also expects oil to rally, with prices reaching the mid-$80s into the third quarter.

“We continue to expect the market to firm up,” FGE said. “But it will likely need a convincing signal of tightening from preliminary inventory data.”

A strong dollar weighed on the market, with the currency rallying after Friday’s US jobs data prompted investors to trim expectations for interest rates. The euro, meanwhile, fell after French President Emmanuel Macron called a snap parliamentary election.

A stronger US currency makes dollar-denominated commodities such as oil more expensive for holders of other currencies. Asia’s imports of crude oil slipped slightly in April from March, as increased arrivals in China failed to offset lower purchases elsewhere in the world’s topimporting region.

April imports were 26.89 million barrels per day (bpd), down from 27.33 million bpd in march and roughly in line with February’s 26.68 million bpd, according to data compiled by LSEG Oil Research.

For the first four months of the year Asia’s crude imports were about 27.03 million bpd, only 300,000 bpd higher than for the same period in 2023, the LSEG data showed. This means that crude oil arrivals in Asia are growing at a pace that is so far well short of the forecast by groups such as the Organization of the Petroleum Exporting Countries (OPEC).

OPEC’s April oil market outlook forecast that global oil demand will rise by 2.25 million bpd in 2024 from the previous year, with 1.24 million bpd of that coming from non-OECD countries in Asia.

China, the world’s largest crude importer, is expected by OPEC to see demand increase by 680,000 bpd in 2024.

However, using official customs data for the first quarter and LSEG’s estimate for April imports, China’s crude arrivals for the January-April period were about 27.03 million bpd, which is 290,000 bpd higher than the customs data for the same period last year.

It should be noted that there is a difference between crude oil imports and demand growth, as the total demand figure can be met from more than just imports such as domestic production and changes in inventories.

Nonetheless, the slower pace of imports in China and the rest of Asia suggest that demand growth is so far nowhere near as strong as the OPEC forecast indicates.

It should also be noted that OPEC, and other analysts, expect demand growth to accelerate over the northern summer months and extend into the second half of 2024, largely on the view that China’s economy is recovering growth momentum and the rest of the world is emerging from its inflation-linked slowdown.