Oil inventories weigh on market, even as peak demand season arrives, Vitol's Asia head says

The oil market which normally enjoys peak demand at this time of year as the holiday driving season takes hold is actually facing "extremely high levels" of oil product inventories on water and a perception of "high inventories" in importing markets such as China, the head of Vitol's Asia told an energy podcast on June 2.

With year-on-year oil demand growth estimates for this year also being revised lower, "demand, in one word," is what oil ministers meeting for OPEC+ online and in Riyadh need to focus on at their June 2 meeting, Michael Muller told the Gulf Intelligence podcast. The oil market has reflected that weakness, with Platts-assessed Dated Brent at $80.18/b on May 31, down from a recent peak of $93.35/b on April 12, according to S&P Global Commodity Insights data.

The conventional wisdom for the past few months has been that year-on-year oil demand growth would be up enough for OPEC+ to consider putting some crude volume back into the market without destablizing prices, Muller said. But the actual scenario today is that "these demand numbers which we had discussed a few months ago have really turned out to be overestimates," Christof Ruhl, senior research scholar at Columbia University's Center on Global Energy Policy, said on the podcast. He noted that economic activity is slowing, notably in the US.

Still, the US driving season is forecast to "look pretty good" and jet fuel demand may be the highest ever this summer, Muller said. And as temperatures rise to extreme heat, there may be more demand for power fuels in countries such as India and Japan for air conditioning, he added.

Hot weather now in India could also mean smaller crops, and reduced diesel demand to fuel tractors for harvest, he said. While the outlook for natural gas is very much buoyed by heat events, refining margins notably in gasoline are at multi-year lows, not counting the COVID years, he said. Refiners that have marginal capacity may decide not to run that capacity, he said.

Middle East oil producers will be the "ultimate winners" if too much supply is unleashed into the market to retain market share, Ruhl said. Saudi Arabia's budget policy is "quite stable" and unlikely to affect oil prices even if the country runs deficits for a long period of time, he added. "They know what they have under the ground, they are flexible in the sense of organizing mega projects and scaling them if they have to."