Morgans predicts oil supply balance deficit in 2H 2024
Make us a preferred source
Make us a preferred source on Google
The news: Morgans analysts predict the oil market will enter a supply balance deficit before the end of the year, as supply fails to keep pace with higher-than-expected demand.
The numbers: The analysts said the oil market "may be pricing in some demand destruction", but if that does not materialise they expect Brent oil to recover to over USD80 ($117.50) per barrel in the next one to three months.
Brent was down 0.25% to USD74.69 by 10:30am AEST.
Australian oil and gas majors Woodside Energy (0.8%), Karoon Energy (0.7%) and Santos (0.5%) gained at market open on the ASX. Ampol (-0.5%) and Beach Energy (-0.2%) fell.
The context: Morgans currently ranks ASX oil majors, from favoured to least favoured, as Woodside Energy, Karoon Energy, Beach Energy and Santos.
The analysts noted that Woodside's share price has declined 21% in 2024, underperforming Brent oil due to offshore institutional selling and acquisition-related concerns.
However, they believe the market is overly discounting Woodside's strong balance sheet, cash flow generation, and prudent capital allocation, maintaining an 'add' rating as it offers attractive value.
On the other end, Santos has seen its share price fall following disappointing first-half earnings, after outperforming peers earlier in 2024. With its investment phase progressing successfully, Morgans maintains a 'hold' rating, but a deeper selloff could present interesting value, the analysts said.
Morgans said that oil demand is in "good shape all things considered", noting that China's oil demand has grown by 1.2% over the last 12 months, despite economic headwinds.
India, while consuming less oil than China, has been growing at a much faster rate, becoming a key driver of global oil demand growth, the analysts said.
They noted that a demand boost from developing economies has also "more than offset" declines in advanced economies like Europe, Japan and North America, helping global oil demand to rise 0.8% year-to-date.
However, despite "robust supply", the analysts flagged that the market remains tight, with the supply-demand gap narrowing and the supply balance outlook trending bullish for 2H 2024.
The analysts also said that periods of easing monetary policy in the US have historically been accompanied by a temporary decline in oil prices, followed by strong multi-year rebounds. As interest rates fall, initial economic weakness typically depresses demand, but the resulting impact on the US dollar and inflation expectations has often led to higher oil prices in subsequent periods.
The source: Morgans research
