Banananomics: Eye-opening Oil Demand, Revealing Media, And Looming Inflation

Eye-opening Oil Demand, Revealing Media, And Looming Inflation

The International Energy Agency (IEA) claims global oil demand will peak by 2029 and begin to contract the following year, but that seems far-fetched.

Inputs that matter: According to the IEA, oil demand growth will plateau at 105.6 million barrels per day (bpd) by 2029 before contracting slightly in 2030 as electric car use rises.

• The forecast prompted IEA Executive Director Fatih Birol to warn Big Oil, suggesting that the world's largest energy majors may wish to align their business strategies with the changes.

The opportunity: "In an era when the development of battery electric vehicle technology is accelerating, there is a new role we can pursue for the internal combustion engine as well," said Koji Sato, Toyota CEO.

• The company also expects the new ICE vehicles to enter production around the end of 2026, when the European Union (E.U.) will begin phasing in new emissions regulations.

• The U.S. Department of Energy (DOE) raised its global consumption growth forecast to 1.1 million barrels per day, up from 900,000 bpd.

• Last week, the average U.S. gasoline price plunged by 10.0 cents to $3.40 per gallon as of Monday, according to the data compiled from individual price reports covering over 150,000 gas stations across the United States.

• GasBuddy states gasoline and diesel prices are set to drop further ahead of July 4.

Zoom in: Demand growth will be driven mostly by emerging economies in Asia, especially by road transportation in India and jet fuel and petrochemicals in China.

• Meanwhile, oil prices have rallied from last week's selloff, even as the IEA warns of a lasting oil surplus for the rest of this decade.

• "We see a sizable deficit in the third quarter, which suggests that prices still have room to run higher," said Warren Patterson, head of commodities strategy for ING Groep NV in Singapore.

Between the lines: The American Petroleum Institute reported that US crude inventories dropped by 2.4 million barrels last week.

• "In the short term, the oil market is likely to tighten," Martijn Rats, commodity strategist at Morgan Stanley, told clients.

Follow the money: Wednesday should be one of the most important days of the year for economic news as investors hear about the path of inflation and how the Federal Reserve plans to react.

• Today "packs months of macro risk into one day," wrote UBS economist Jonathan Pingle.

• "While both typically have proven to be market-moving events, we expect very little fireworks from both releases given our expectations for rather benign outcomes," said Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers.

• "On the inflation front, expect more of the same – continued evidence that the broader disinflationary trend is still intact and that the stickier first quarter data was simply a pause in a downtrend," Janasiewicz concludes.

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