Oil Glut Seen for 2025, Unless…

“The economy is not sending any signals that we need to be in a hurry to lower rates,”

These words from Fed Chairman Jerome Powell were enough to send forecasts for a rate cut in December down from 82% yesterday to 59% today (with 40% thinking rates will now remain unchanged).

~Doug (My Linkedin, let’s connect)

What’s in this issue:

• Energy Market Recap
• EIA Releases Inventory Data
• Supplies vs. Shock
• TS Sara
• Headlines

Energy Markets🛢️Oil prices ended unchanged, although slightly higher, as the EIA reported a build in inventories of 2.1 million barrels. The Gulf Coast showed a build of 2.5 mm while the Midwest and Cushing showed slight draws.​ A WSJ poll of analysts showed expectations of a build around 1.1 mm barrels.​Both gasoline and distillates showed inventory draws (4.4mm barrels, 1.4 mm barrels respectively) against expectations of builds and remain below 5-year average inventory levels for this time of year. 🔥Natural gas prices fell over 6.5% as the EIA showed another inventory build. Although the number, a build of 42 bcf, was largely in line with expectations, inventories are now above the 5-year maximum range. ​​ +European gas prices surge on potential disruption from Russia – FT

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Supplies vs. Shock A broad consensus around an oversupplied market for 2025 (and impending price declines) is being offset by lingering geopolitical risks.​ The IEA forecasts (and Morgan Stanley agrees) a 1mm bpd supply glut in 2025, even if OPEC+ continues to push back any quota increases. The group now sees 2025 demand growth at 990,000 bpd vs OPEC’s stated projection of 1.54 mm bpd. However, we’ve already noted OPEC consistently rolling back its number.​China DemandDeclining demand out of China was the main news before Israel/Iran grabbed headlines and showed the risk of being short this market. Now the China narrative is back in full force as stimulus packages out of Beijing continue to disappoin t.​John Kemp@JKempEnergy CHINA’s crude oil imports declined by 17 million tonnes (-4%) in the first ten months of 2024 compared with the same period in 2023: The IEA points out that:​”China’s marked slowdown has been the main drag on demand, with its growth this year expected to average just a tenth of the 1.4 million barrels a day increase in 2023,”​Shock RiskBut that doesn’t mean there aren’t upside risks. Despite weak fundamentals, the risk of a supply shock remains elevated. As Citi puts it:​”analysts increased their bull-case estimate to $120 from $80 a barrel for the fourth quarter and first quarter of next year, while assigning such an outcome a probability of 20%, up from 10% previously.”

TS SaraTS Sara is currently hugging the coast of Central America. It is expected to be a tropical depression when it reenters the Gulf of Mexico after crossing the Yucatan.​Remember, hurricane season goes until Nov 30. We’ll have to see if it remains organized enough to reform in the warm waters of the Gulf.