Market Review

This week, crude oil futures prices rebounded. The disruption to U.S. crude oil production caused by recent hurricanes has yet to fully recover, and the Federal Reserve's unexpected rate cut, along with declining crude inventories, contributed to the rebound in oil prices. By the close of trading on Friday, the main SC crude oil futures contract closed at 523.1 yuan per barrel, up 1.95% from last Friday's close. International crude oil also rebounded, with Brent crude oil's main contract closing at $73.92 per barrel, up 3.41% from last Friday, while WTI crude oil's main contract closed at $71.11 per barrel, up 2.70%.

Supply Analysis

(1) OPEC Crude Oil Supply

OPEC has maintained its forecast for non-OPEC supply growth in 2024 at 1.2 million barrels per day. According to a report on September 5, OPEC stated that eight OPEC+ member countries will extend their voluntary additional production cuts by two months, until the end of November 2024. These eight countries include Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria, and Oman.

Data shows that OPEC's crude oil production in August fell to the lowest level in a month, dropping to 26.36 million barrels per day. The decline was primarily due to disruptions in Libyan oil production, while Kuwait and Nigeria increased output. Although Libya's production losses exceeded 150,000 barrels per day, the significant reduction only occurred recently, not affecting most of August's production. Saudi Arabia, OPEC's largest member, adhered to its August production quota as expected, while Iraq once again failed to meet its quota, producing 320,000 barrels per day more than agreed. Iraq claims it will make compensatory cuts to offset the excess production.

(2) U.S. Crude Oil Supply

As reported on September 16, the U.S. Bureau of Safety and Environmental Enforcement (BSEE) announced that, following Hurricane "Francine," over 12% of crude oil production and 16% of natural gas production in the U.S. Gulf of Mexico remains offline. After "Francine" hit the coast last week, 213,204 barrels per day of crude oil and 298 million cubic feet of natural gas remain shut down.

According to a September 11 report, the U.S. Energy Information Administration (EIA) stated in its short-term energy outlook that global oil demand growth for this year is expected to exceed previous estimates, while production growth is anticipated to be lower.

In 2024, U.S. crude oil production is expected to reach 13.3 million barrels per day, an increase of 400,000 barrels per day, compared to the previous estimate of 13.23 million barrels per day, with an increase of 300,000 barrels per day. U.S. crude oil production in 2025 is expected to reach 13.7 million barrels per day, a rise of 400,000 barrels per day, slightly lower than the previous estimate of 13.69 million barrels per day, with an increase of 500,000 barrels per day. For the week ending September 13, U.S. daily crude oil production averaged 13.2 million barrels, down 100,000 barrels per day from the previous week but up 300,000 barrels per day compared to the same period last year.

Baker Hughes, a U.S. energy services company, reported that the number of active oil and gas drilling rigs in the U.S. increased this week, marking the first rise in five weeks and the largest weekly increase in a year. As of the week ending September 13, the total number of active oil and gas rigs in the U.S., a leading indicator of future production, increased by eight rigs to 590, returning to mid-June levels. This week's increase is the largest since the week ending September 15, 2023. Despite the increase, the total number of rigs is still 51 rigs, or 8%, lower than the same period last year. Active oil rigs increased by five to 488, while natural gas rigs increased by three to 97.

Demand Analysis

On Tuesday, the Organization of the Petroleum Exporting Countries (OPEC) lowered its forecast for global oil demand growth in 2024, marking the second consecutive month of downward revisions. In its monthly report, OPEC stated that global oil demand in 2024 is expected to grow by 2.03 million barrels per day, down from the previous forecast of 2.11 million barrels per day. OPEC also reduced its 2025 global oil demand growth estimate to 1.74 million barrels per day, compared to last month’s estimate of 1.78 million barrels per day.

OPEC's forecast for global economic growth in 2024 is now 3%, up slightly from the previous estimate of 2.9%. For 2025, the global growth estimate remains at 2.9%. For the U.S., economic growth projections for 2024 and 2025 are 2.4% and 1.9%, respectively, unchanged from previous estimates. In the Eurozone, 2024 and 2025 growth projections are 0.8% and 1.2%, respectively, compared to previous estimates of 0.7% and 1.2%.

According to a report from September 11, the U.S. Energy Information Administration (EIA) stated that global oil demand growth for this year is expected to be higher than previously anticipated. In 2024, global oil demand is projected to reach 103.1 million barrels per day, up from the earlier estimate of 102.9 million barrels per day. Demand in 2025 is expected to reach 104.6 million barrels per day, slightly higher than the previous estimate of 104.5 million barrels per day.

In the U.S., oil demand in 2024 is expected to reach 20.3 million barrels per day, which is 200,000 barrels per day lower than previous estimates. The demand forecast for 2025 remains unchanged at 20.6 million barrels per day.

For the week ending September 12, U.S. refineries processed an average of 16.477 million barrels per day, down by 283,000 barrels per day from the previous week. The refinery utilization rate was 92.1%, a 0.7 percentage point decrease from the prior week.

Data shows weak demand from both China and India. In India, July crude oil imports fell 0.8% year-on-year to 19.36 million tons. However, imports of petroleum products increased by 15.4% year-on-year to 4.35 million tons, while exports of petroleum products decreased slightly by 4.5% to 5.12 million tons.

In China, the operating rate of local refineries has rebounded month-on-month but remains historically low. As of the week ending September 19, the refinery utilization rate was 59.30%, down 8.79% year-on-year but up 0.14% month-on-month.

China's crude oil imports increased in August compared to the previous month but remained low. Data from the General Administration of Customs released on September 10 showed that China’s crude oil imports in August totaled 49.103 million tons, with total imports for the January-August period amounting to 366.914 million tons, a 3.1% year-on-year decrease. China’s refined oil product imports in August reached 4.468 million tons, and for the January-August period, cumulative imports were 32.506 million tons, up 6.2% year-on-year. China's natural gas imports in August totaled 11.762 million tons, with cumulative imports for the January-August period reaching 87.128 million tons, a 12.3% year-on-year increase.

Inventory Analysis

The U.S. Energy Information Administration (EIA) released data on Wednesday showing that U.S. net crude oil imports significantly declined last week, while commercial crude oil inventories dropped and gasoline and distillate inventories slightly increased.

As of the week ending September 13, total U.S. crude oil inventories, including strategic reserves, stood at 798.19 million barrels, down by 980,000 barrels from the previous week. Commercial crude oil inventories fell to 417.513 million barrels, a decrease of 1.63 million barrels from the prior week. Gasoline inventories rose by 68,000 barrels to 221.621 million barrels, and distillate inventories increased by 124,000 barrels to 125.148 million barrels. Crude oil inventories in the highly watched Cushing, Oklahoma storage hub decreased by 1.979 million barrels to 22.711 million barrels.

The U.S. Strategic Petroleum Reserve (SPR) increased by 655,000 barrels to 380.606 million barrels. Current crude oil inventories are 0.23% lower than the same time last year and 4% lower than the five-year average. Gasoline inventories are 0.98% higher than last year but slightly below the five-year average, while distillate inventories are 4.58% higher than last year but 9% below the five-year average.

Last week, U.S. crude oil imports averaged 6.322 million barrels per day, down by 545,000 barrels per day compared to the previous week, while daily refined product imports decreased by 333,000 barrels. Crude oil exports averaged 4.589 million barrels per day, an increase of 1.284 million barrels per day from the prior week but 478,000 barrels per day lower than the same period last year.

Net crude oil imports for the week averaged 1.733 million barrels per day, a decrease of 1.829 million barrels per day from the previous week. On the demand side, U.S. gasoline and distillate consumption increased, with total U.S. petroleum demand averaging 19.792 million barrels per day, up by 409,000 barrels per day from the previous week. Gasoline demand averaged 8.776 million barrels per day, an increase of 298,000 barrels per day, while distillate demand averaged 3.798 million barrels per day, up by 240,000 barrels per day from the previous week.

Market Outlook

On the supply side, last week’s hurricane affected crude oil production in the U.S. Gulf of Mexico, and output has not yet fully recovered. Additionally, the escalating tensions in the Middle East provide some support to oil prices from the supply perspective.

On the demand side, both OPEC and the International Energy Agency (IEA) revised down their demand growth forecasts this week, citing weak global demand. China's economic data for August fell short of expectations, and the peak summer consumption season in the U.S. has ended, resulting in little improvement on the demand front.

As for inventories, crude oil stocks declined last week. Moreover, the U.S. Federal Reserve’s rate cut, which exceeded expectations, eased concerns about the demand outlook. Overall, the momentum for oil prices to rise further remains weak, and it is expected that oil prices will continue to fluctuate at low levels in the short term.