Hurricane Francine Drives Oil Prices Up; IEA Cuts 2024 Demand Forecast Amid China Slowdown

Petroleum Price

• Oil prices rose on Friday, extending a rally sparked by output disruptions in the U.S. Gulf of Mexico, where Hurricane Francine forced producers to evacuate platforms before it hit the coast of Louisiana.
• Brent crude futures rose by 34 cents, or 0.5%, to $72.31 per barrel by 0016 GMT. U.S. West Texas Intermediate crude futures rose by 38 cents, or 0.6%, to $69.35 a barrel. MCX crude oil prices opened at ₹5,830, gaining 0.36%.

Petroleum Demand and Supply

• Oil producers assessed damages and conducted safety checks on Thursday as they prepared to resume operations in the U.S. Gulf of Mexico, with estimates of supply losses from Hurricane Francine emerging.
• UBS analysts forecast a September output drop in the region by 50,000 barrels per day (bpd) month-over-month, while FGE analysts estimated a 60,000 bpd decline, bringing output down to 1.69 million bpd.
• Official data showed that nearly 42% of the region’s oil output was shut-in as of Thursday. The supply shock helped oil prices recover from a sharp selloff earlier in the week, when demand concerns dragged benchmarks to multi-year lows.
• Both the Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) lowered their demand growth forecasts this week, citing economic struggles in China, the world’s largest oil importer. A shift towards lower-carbon fuels is also weighing on China’s oil demand, as discussed at the APPEC conference this week.
• China’s crude oil imports averaged 3.1% lower from January through August this year compared to the same period last year, according to customs data released on Tuesday.

Petroleum News

• “Flagging domestic oil demand in China has become a hot topic, further underlined by disappointing August trade data,” FGE analysts said in a note to clients.
• Demand concerns have also grown in the United States. U.S. gasoline and distillate futures traded at multi-year lows this week, as analysts highlighted weaker-than-expected demand in the top petroleum-consuming country.
• U.S. oil and fuel stocks rose last week as demand declined sharply, data from the U.S. Energy Information Administration (EIA) showed on Wednesday.
• Crude oil prices surged by 2.09%, settling at ₹5,809, driven by concerns over Hurricane Francine's impact on U.S. oil production. The hurricane is expected to disrupt around 1.5 million barrels of oil output, reducing September production in the Gulf of Mexico by approximately 50,000 barrels per day (bpd).
• However, gains were tempered by a weaker demand outlook. The IEA cut its 2024 global oil demand growth forecast by 70,000 bpd to 900,000 bpd, citing a slowdown in Chinese demand due to economic challenges and the increased adoption of electric vehicles.
• Chinese demand is now projected to grow by just 180,000 bpd in 2024. U.S. crude inventories increased by 0.833 million barrels for the week ending September 6, 2024, slightly below market expectations of a 1 million barrel rise. Gasoline and distillate stockpiles also rose, with gasoline increasing by 2.311 million barrels and distillates by 2.308 million barrels, both exceeding forecasts.
• In contrast, crude stocks at the Cushing delivery hub declined by 1.704 million barrels, signaling tighter supply in certain areas. On the global front, China's crude oil imports in August fell 7% year-on-year to 49.10 million metric tons, although they rebounded from July's lows.

Expert Opinion

• The International Energy Agency (IEA) has reduced its global oil demand growth forecast for 2024, citing weaker growth in China. The agency now projects an increase of 900,000 barrels per day, a reduction of 70,000 barrels per day from its earlier estimate.
• The IEA's revision aligns with the view that global oil consumption will plateau by the end of the decade, driven by slowing Chinese demand and the energy transition towards cleaner fuels. Brent crude prices fell below USD 70 a barrel following the report, marking their lowest levels since December 2021.