Can optimistic demand outlooks support oil prices?

Oil demand growth forecasts are higher. The glut is disappearing. Is it time to feel optimistic about oil markets again? Elsewhere, natural gas builds on heightened LNG feed gas volumes.

Oil trading

It’s been a choppy couple of weeks for oil, but, as of now, prices are starting to pick up again. WTI is trading at above $64 this morning. Brent is trading over $67. Will we see Brent breach $70 again soon?

It very well could do. There is a growing sense of optimism around oil markets this year. Global vaccination rollout is feeding into a quicker return to normality. Economic recovery is underway around the world too, driving oil demand upward.

Optimistic outlooks from the IEA and OPEC suggest demand recovery will increase in 2021, supported by rapid global economic growth. IEA puts world demand growth at 5.7 mbpd. The OPEC outlook suggests 5.95 mbpd, following the cartel’s decision to loosen its oil cuts and taper output upward towards June.

US commercial crude oil inventories decreased by 5.9 million barrels from the previous week, according to the latest EIA report. At 492.4 million barrels, US crude oil inventories are about 1% above the five year average for this time of year.

The oil glut that has built up across the pandemic appears to be over. In February, oil stocks fell for the seventh month in a row across OECD countries. In the IEA’s April Oil Market Report, data shows Industry inventories declined by 55.8 million barrels, or by 2 million barrels per day (bpd), during February, led by a sharp draw of 66.8 million barrels in product inventories.

OPEC and allies also committed to tapering up production volumes at its April meeting. Towards June, output will increase in line with demand expectations. OPEC+ producers will now add 2m/bpd to global supplies over the coming month. Saudi Arabia will also be unwinding its self-imposed 1m/bpd cut.

More oil will be hitting be on the markets soon. That should feed into stronger prices. Pre-pandemic oil demand is still some way off, but the optimism is there amongst oil’s key players.

Natural gas trading

Last week was a strong week for natural gas. Prices hit their highest levels since March, driven by higher LNG demand and cooler temperatures throughout the US.

LNG feed gas volumes are a key support. European and Asian imports are expected to keep demand high for feed gas. Volumes flirted with 2021 highs last week, reaching 11 Bcf.

US weather outlooks suggest cooler temperatures will remain throughout the next two weeks. Warmer spring weather will return by the end of the month.

EIA in its latest natural gas storage report says total stocks now stand at 1.845 Tcf: down 242 Bcf from a year ago but 11 Bcf above the five-year average. Domestic supplies rose 61 billion cubic feet (Bcf) for the week ended April 9.