Morgan Stanley cuts oil demand growth outlook on China factors

Morgan Stanley has lowered its global oil demand growth forecast for 2024, mainly due to China's slower economic growth, increased electric vehicle usage there, and a rise in the number of trucks in China powered by liquefied natural gas (LNG), reports Reuters.
The bank cut its global oil demand growth forecast for this year to 1.1 million barrels per day (mbpd) from 1.2 mbpd.
It also lowered its Brent price forecasts modestly and sees prices averaging $80 per barrel in the fourth quarter of 2024 compared to $85 per barrel previously.
Brent crude was trading around $78 a barrel by 1221 GMT on Friday, and US West Texas Intermediate crude futures were at $74.52.
The shift to LNG trucks has cut China's oil demand growth by 100-150 thousand barrels per day (kbd), while gasoline displacement by EVs has reduced it by about 100 kbd, Morgan Stanley analysts said in a note dated Aug. 22.
Additionally, growth in petrochemical capacity expansion - which boosts LPG, ethane, and naphtha consumption - has slowed due to low petrochemical margins, the note said.
The note chimes with last week's cut by the Organization of the Petroleum Exporting Countries (OPEC) in its oil demand growth forecast for this year and 2025, also citing softness in China.
For now, the balance in the oil market is tight, with inventories being drawn down by about 1.2 million barrels per day in the last four weeks, a trend which is expected to continue for the rest of the third quarter, Morgan Stanley said.
"However, with demand set to slow after summer, and both OPEC and non-OPEC supply to increase from the fourth quarter, we foresee a softening balance, turning to surplus in 2025," it added.
In the short term, Brent prices have declined ahead of the underlying market fundamentals, the bank said, adding it expects Brent to be anchored around $75 per barrel this time next year.