Global oil consumption is growing more slowly than anticipated at the start of the year as the rebound in the major economies runs out of momentum and consumer travel returns to normal after the post-pandemic boom.
Global inventories have depleted this summer but the drawdown has been relatively slow, from an elevated starting point, which has taken much of the bullishness out of the market.
Portfolio managers have cut their combined position in the six most important petroleum futures and options contracts to a record low in data going back to 2013.
U.S. oil refiners have cut processing of crude and other feedstocks to the slowest for several years in the face of sluggish fuel consumption and rising stocks especially for diesel and jet fuel.
Jet consumption in both the United States and China has undershot forecasts as a result of sluggish air freight, increasing resistance from passengers to higher airfares, and improvements in aircraft efficiency.
U.S. jet fuel inventories have climbed to the highest for the time of year since 2010 as the post-pandemic surge in business and consumer travel has waned.
Diesel demand has also been sluggish as manufacturers have reported declines in activity in the second and third quarters across the United States, the Eurozone and China, and biofuels take an increasing bite out of the market.
OPEC’s secretariat this week downgraded its forecast for demand growth in 2024 but it remains high and well above alternative forecasts by the U.S. Energy Information Administration and International Energy Agency, risking further downward revisions.
Lower oil prices are also contributing to disinflation in the United States and Europe, giving central banks more confidence to start trimming interest rates.
Oil traders must now wait to see whether lower rates reverse some of the slowdown in diesel and jet growth by sparking more business investment and consumer spending, or if the economy’s soft patch lingers.
