Bearish Winds Blow as Morgan Stanley Trims Oil Demand Growth Prediction

Crude oil futures closed the week with mixed results, ticking up after absorbing optimistic U.S. inventory data yet closing lower overall. Federal Reserve Chair, Jerome Powell, sent ripples through the market, signaling a forthcoming interest rate cut.

Economic Anomalies Unsettle Oil Futures

Earlier, oil futures tumbled to their lowest levels since the start of the year following a stark downward revision in U.S. job growth estimates, sparking fears of an impending recession. This shadowed a substantial decrease in U.S. crude inventories which would have otherwise been a boon.

Shifting Tides in Oil Demand Forecast

Addressing the Kansas City Fed’s annual economic conference in Jackson Hole, Wyoming, Powell highlighted the crucial need for policy adjustments in light of diminishing inflation risks and heightening employment concerns. These factors have cast a fog of uncertainty over the oil market.

China’s Influence on Oil Demand Predictions

Morgan Stanley recently joined the chorus of analysts marking China’s economic slowdown and the surge in electric vehicle adoption as key factors behind their downward revision of the global oil demand growth prediction for 2024. Gasoline displacement by electric vehicles in China has chipped away at growth by 100,000 barrels per day.

Market Reactions and Projections

The bank projects global oil demand to climb to 1.1 million barrels per day this year, slightly lower than their previous forecast of 1.2 million barrels per day. Additionally, they have adjusted their Brent price forecast to an average of $80 per barrel in Q4 2024 compared to the previous projection of $85 per barrel.

EVs and LNG Trucks Impact Oil Demand

China’s utilization of liquefied natural gas in trucks has further dented oil demand growth by 100,000 to 150,000 barrels per day, showcasing the evolving landscape of energy consumption in the country.

Diverse Impacts on Energy Sector

The Energy Select Sector SPDR Fund ETF, representing the energy industry, concluded the week in the red, contrasting with other sectors that performed positively. This underlines the nuanced challenges that the energy market is currently navigating.

Market Performance Overview

In the energy and natural resources sector, the past five days saw notable gains for companies such as Perma-Pipe International (PPIH), Piedmont Lithium (PLL), and Eos Energy Enterprises (EOSE). Despite these gains, firms like Zeo Energy (ZEO) and Tamboran Resources (TBN) experienced declines, reflecting the sector’s varied trajectory.

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