Global Oil Demand Robust Despite Tariff Chaos
Oil prices rallied on Wednesday after U.S. government data showed a draw in fuel inventories.
Brent crude for May delivery gained 1.6% to trade at $71.98 per barrel at 12.30 pm ET while the comparable WTI contract climbed 1.8% to change hands at for U.S. government data showed that crude stocks rose by 1.7 million barrels last week to 437 million barrels, significantly higher than the Wall Street consensus of a 512,000-barrel build.
However, distillate inventories, including diesel and heating oil, fell by 2.8 million barrels to 114.8 million barrels, exceeding expectations for a 300,000-barrel drop.
“The EIA showed a net draw including products, which is incrementally bullish,” said Josh Young, chief investment officer at Bison Interests.
Oil prices have held up surprisingly well over the past couple of weeks despite the presence of numerous headwinds that could have pushed Brent prices more decisively below $70/bbl. Indeed, front-month Brent has exceeded $70/bbl at some point on each of the past eight trading days. Speculative positioning, however, remains skewed to the short side of the market, particularly for gasoline and crude oil. Trader sentiment remains negative largely due to concerns over the potential demand effects of U.S. tariff policies and the potential supply effects of a U.S. switch to policies that are more accommodative of Russian targets.
However, much of the bearish sentiment could be unjustified. Commodity analysts at Standard Chartered have revealed that global oil demand remains robust, with demand in January averaging 102.77 million barrels per day (mb/d), good for a 2.19 mb/d Y/Y increase. StanChart’s demand figure is based on a variety of national sources and the 19 March Joint Organisations Data Initiative (JODI) release. Interestingly, StanChart’s estimates are in the ballpark of those by the U.S. Energy Information Administration (EIA) which estimates January demand at 102.74mb/d and growth at 1.85mb/d.
StanChart notes that January is usually the seasonal low point for global oil demand, and has predicted demand to exceed 105.0 mb/d for the first time in June before reaching a 2025-high of
105.6 mb/d in August. The analysts estimate that global demand growth for the entire year will clock in at 1.41 mb/d. Further, StanChart sees global demand exceeding supply by 0.9 mb/d in Q2 and by 0.5 mb/d in Q3. While the main downside risk to demand remains U.S. tariff policy and the attendant economic uncertainty, demand-side fundamentals appear robust for now despite negative sentiment.
Regarding the oil price trajectory, StanChart says several catalysts have prevented a severe oil price crash. First off, the market appears oversold in technical terms, with the move lower that has happened over the past two months lacking steam and driven purely by its own past momentum. Second, geopolitical risk appears significantly underpriced. Whereas traders might disagree on the scale of upside price risk, few believe the market is pricing the right-side tail of the distribution correctly. Third, some of the negative sentiment at the recent London IE Week is dispersing, with traders concluding that the bearishness that dominated the week was overdone. Fourth, many traders are paying closer attention to fundamental balances, and noting the stronger-than-expected outcomes in Q4 and Q1 as well as the continuing downward pressure on inventories. Finally, traders are coming to terms with the reality of a U.S. Shale Patch that will struggle to ramp up output.
Trump says he’ll push shale producers to ramp up output, even if it means operators “drill themselves out of business.” However, commodity analysts at Standard Chartered have predicted that the dramatic slowdown in U.S. oil production growth that we witnessed in 2024 will continue over the next two years. According to the experts, last year witnessed a sharp slowdown in non-OPEC+ supply growth from 2.46 mb/d in 2023 to 0.79 mb/d in 2024, primarily caused by a reduction in U.S. total liquids growth from 1.605 mb/d in 2023 to 734 kb/d in 2024. StanChart expects this trend to continue, with U.S. liquids growth expected to clock in at just 367 kb/d in 2025 before slowing down further to 151 kb/d in 2026.