As Oil Price Recovers, Demand for Fuel may drop

As Oil Price Recovers, Demand for Fuel may drop

Bloomberg – Here’s one reason to withhold faith in oil’s recovery after the biggest rally in seven years: Once winter fades, it’s downhill all the way for fuel demand until summer.

The 12 percent rebound in West Texas Intermediate on Friday couldn’t save the U.S. crude benchmark from a 4.7 percent weekly decline. Prices remain below $30 a barrel even as demand for heating amid the northern hemisphere weather drives demand to its seasonal peak. Fuel consumption will start to taper off next month as temperatures rise, removing further support from prices.

Over the past 10 years, global oil demand has on average declined about 1.4 million barrels a day between February and May  more than the combined consumption of the states of New York and Pennsylvania — according to data from the U.S. Energy Information Administration. It starts to increase again by May, as people drive off on vacation in Europe and the U.S., and turn up air conditioners in the Middle East.

“Given the seasonality of oil demand, traditionally there is a supply surplus in the first half of the year,” David Hufton, chief executive officer of brokers PVM Group, said by e-mail. Whatever oil doesn’t get consumed “will come on top of the mountain of oil that built up in 2014 and 2015.”

The International Energy Agency estimates that during the first half of 2016 anadditional 1.75 million barrels a day will be piled onto stockpiles that are already at a record. In Hufton’s view, it might take until the second half of 2017 before the surplus is eliminated and stockpiles start to shrink, paving the way for a recovery in prices back toward $50 a barrel.

It’s little surprise BP Plc CEO Bob Dudley said last week that he remains “very bearish” for the first half, or that Goldman Sachs Group Inc. predicted crude could slide below $20 a barrel before the rout is over.

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