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Oil futures finished higher Wednesday despite an unexpected 3.7M-barrel build in U.S. crude stocks and the International Energy Agency’s forecast of a “staggering” oil glut by the end of the decade.
The IEA sees oil demand growth peaking by 2029 and beginning to shrink the next year, reaching 105.4M bbl/day in 2030 as the rollout of clean energy technologies accelerates, while oil production capacity is set to increase to 113.8M bbl/day, driven by producers in the U.S. and the Americas.
“This would result in levels of spare capacity never seen before other than at the height of the COVID-19 lockdowns in 2020,” the IEA warned. “Such a massive oil production buffer could usher in a lower oil price environment, posing tough challenges for producers in the U.S. shale patch and the OPEC+ bloc.”
The IEA’s assertion of waning oil demand growth and surging supplies was a negative for oil Wednesday, Dennis Kissler of BOK Financial said, according to Dow Jones, but “most traders are taking that with a grain of salt as global refinery demand is still very present, and the EV craze of electric vehicle growth looks to be slowing.”
Meanwhile, U.S. crude inventories posted a surprise build last week, up by 3.7M barrels to 459.7M barrels, compared with expectations of a 1.2M-barrel draw, and domestic gasoline stocks rose more than expected, up by 2.6M barrels to 233.5M barrels.
Crude prices were supported by a tamer than estimated U.S. inflation reading for May, while the Federal Reserve left interest rates unchanged as expected, but projected just one rate cut this year.
Front-month Nymex crude (CL1:COM) for July delivery settled +0.7% to $78.50/bbl, and front-month August Brent crude (CO1:COM) closed +0.8% to $82.60/bbl, the fifth gain in the past six sessions for both benchmarks.
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Citi analysts painted a bleak picture for the oil market in a new report Wednesday, forecasting a drop to $60/bbl for Brent crude a year from now.
Citi sees global oil balances moving into a “meaningful surplus,” even if OPEC and its allies extend production cuts through to the end of next year, and that if the cartel follows through on its recent plan to unwind some of the cuts, the bank predicted a “very large surplus” will follow.
Citi’s oil price deck is lower than all of its peers: Brent is seen slipping to $74/bbl in Q4, with 2025 opening at $65/bbl and sliding to $60 in Q2 and Q3, before ending next year at $55/bbl; price projections for WTI are ~$4/bbl lower.
The bank believes copper is the hottest commodity to hold in 2024-25, forecasting prices will surge to $12K/ton next year, and suggests investors go long in the metal while shorting crude oil.
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