In the key advanced economies, the consumer price index (CPI) has signalled an easing of inflation. In the US, it declined to 3.3% in May but remains above the US Fed’s target level of 2%. Similarly, in the Eurozone, the CPI dropped to 2.5% in June. However, CPI levels in key developing countries have shown diverging trends, as can be seen in China, with inflation currently at 0.3% in May while in India the CPI dropped to 4.7% in May. With this, and amid persistent inflationary pressures, the anticipated shifts towards monetary policy easing have been somewhat cautious. The European Central Bank (ECB) recently cut its three key interest rates by 25 basis points, but the US Federal Reserve (Fed) and the Bank of England (BOE) have opted to keep policy rates unchanged at their most recent meetings The divergences in monetary policies are influenced not only by inflation expectations but also by a wide range of factors, including variations in inflation subcomponents, currency vulnerabilities, government debt, differences in business cycles, and the effects of geo-economic developments.

Notably, the US Fed’s policy decisions tend to have the most direct impact as trade is primarily dollardenominated. The Fed’s current cautious approach presents a key challenge for the global oil market on two major fronts: the oil supply side and the strength of the US dollar (USD). On the supply side, the current highinterest rate environment increases the cost of capital, especially in the US market. This comes at a time when capital discipline mandates and shareholder activism are already limiting investment in exploration and production. On the USD front, maintaining interest rates at current levels supports the strength of the USD, resulting in higher commodity prices. The Fed’s stance to defer a rate cut could potentially constrain the abilities of other major economies to reduce their policy rates further, thus subjecting their economies to inflationary pressures as they aim to avoid weakening their currencies relative to the USD.

Despite the aforementioned challenges, the global economy remains resilient. The downward trend in global inflationary pressures observed during much of 1H24 is expected to continue into 2H24. The growth seen in the US economy at 1.3% in 1Q24 is a major factor supporting potential rate cuts by the US Fed in the latter half of the year.

Overall, global economic growth for 2024 is forecast at 2.9%. This growth is expected to support a healthy oil demand environment, with demand projected to grow by 2.2 mb/d, y-o-y, to an average of 104.5 mb/d in 2024, up from 102.2 mb/d seen in 2023. On the supply side, the non-DoC liquids production is forecast to grow by 1.2 mb/d, y-o-y, averaging 53.0 mb/d in 2024, compared to 51.7 mb/d seen in 2023.
Source: OPEC