APPEC: Oil markets seek answers on OPEC+ strategy, sliding demand and volatile geopolitics

Oil market delegates attending the Asia Pacific Petroleum Conference -- or APPEC 2024 -- will be seeking insights on whether mounting geopolitical turbulence and OPEC+ strategy to extend production cuts can overshadow a slowdown in demand and support prices.

Additionally, the evolving landscape of global oil trading and the outlook for consumption of transportation fuels amid rising electric vehicle use will be some other topics of focus at APPEC, scheduled in Singapore over Sept. 9-12.

"There are multiple themes for APPEC, ranging from energy transition, decarbonization strategies, market trends and price outlooks, technological innovation, sustainable practices, as well as geopolitical influence on global energy markets," Kang Wu, global head of oil demand research at S&P Global Commodity Insights, said.

For the oil markets, one of the key themes for this year's delegates will be how the oil demand and supply outlook might shape up in the near future.

According to Commodity Insights, OPEC and its allies' decision Sept. 5 to extend its voluntary production cuts for two months until the end of November is seen as neutral for Brent crude prices from current levels, but short-term fundamentals remain bearish. They expect October to see a crude stock build, regardless, as refinery maintenance will cut October runs by at least 1.6 million b/d from August.

The planned 190,000 b/d hike for October is now set to be a 189,000 b/d hike for December. Likewise, the additional 173,000 b/d hike for November is now set to be a sequential 207,000 b/d increase for January.

The removal of these barrels from fourth-quarter balances is only a minor offset to an expected fall in refinery demand over that period. Global crude stocks will still rise.

Weak refining margins

Although ongoing geopolitical tensions in the Middle East and OPEC+ production cuts have hardly caused feedstock supply shortfalls in Asia, refiners are now focusing on weak crack spreads and refining margins, as well as fragile oil demand, feedstock managers and middle distillate traders said.

"What [the] Asian refining industry is mostly worried about is high shipping insurance premiums and crude oil logistical costs eating into overall refining margins," a feedstock management source at Japan's Cosmo Oil said.

Broader economic activity across major East Asian economies remains sluggish, with gasoil and petrochemical demand continuing to lag amid quiet manufacturing and construction sectors, as well as weak goods and services exports, according to middle distillate marketers and analysts.

Platts, part of S&P Global Commodity Insights, assessed the second-month Singapore gasoil swap crack against Dubai crude swaps at an average of $16.77/b so far in third-quarter 2024, up from $16.53/b in Q2 but sharply below the average $22.12/b in Q1 and the 2023 average of $22.82/b.

Chinese refineries' crude throughput extended a downtrend in July, falling 2% from June to a 21-month low of 13.96 million b/d, reflecting a cooling demand in Asia's biggest oil consumer after the country's gross domestic product growth slowed to 4.7% in Q2 2024.

Elsewhere, Japan's real GDP growth forecast for 2024 was revised down in the July update to 0.1% from 0.5%, while Asia's fourth biggest economy South Korea saw its July industrial production undershoot expectations, falling 3.7% month on month.

Demand outlook

A soft response to stimulus measures, delays to petrochemicals projects, and cool and wet weather are all dampening the Chinese demand. Electrification of transportation and a troubled property market are also hitting consumption. Therefore, the country's oil demand growth would likely stay in a low gear in the near future.

APPEC delegates will also be keeping a close eye on the outlook for jet fuel demand and when the market would recover fully to pre-pandemic levels.

Asia's jet fuel appetite surged 430,000 b/d on the year in first-half 2024 as the region saw the sharpest rise in air travel, but signs are emerging that the demand growth may taper off in H2 as aviation demand normalizes after the pandemic.

Asia's jet fuel demand growth is expected to be around 270,000 b/d in H2, which would eventually pull down the annual rate of demand growth in 2024 below 2023 levels, according to Commodity Insights.

Asian jet demand growth will moderate to 361,000 b/d in 2024 from 620,000 b/d in 2023, before further easing to 190,000 b/d in 2025 due to the fading impact of aviation demand normalization, according to Commodity Insights. Regional jet fuel demand will recover to 99.5% of the 2019 level by 2025.