CICC: Negative feedback on oil demand in the second half of the year may play an important role in re-balancing the fundamentals. The forecast for global oil demand growth in 2026 has been revised down to -0.8%.

Zhongjin released a research report stating that since March, the volatility center of Brent oil prices has risen to $100 per barrel. However, under the repeated disturbances of geopolitical degradation expectations, the bank believes that the current negative feedback level of global oil demand may not be sufficient to drive the fundamental rebalancing. Global onshore oil inventories officially entered a downward channel in April. Even considering a certain reduction in demand, the bank believes that inventories may further decline in May-June, and the current oil price level may not fully reflect the downward pressure of destocking. Looking ahead to the second half of the year, the negative feedback of oil demand may play an important role in fundamental rebalancing. With the gradual recovery of the Strait of Hormuz in the second half of the year, the bank expects that global oil demand in 2026 may be further damaged by supply shocks by an additional 1.5-2 million barrels per day, lowering the forecasted global oil demand growth rate for 2026 to -0.8% (previously forecasted at +1%). The main views of Zhongjin are as follows: Supply shocks lasting for several months, demand negative feedback cannot be ignored The increase in oil prices is mostly the result of the combined forces of supply and demand, so the negative feedback of demand on prices is difficult to directly observe. To evaluate the demand elasticity under supply shocks, the bank has built a quantitative calculation model for the negative feedback of global oil demand on price-rise driven by supply, and has derived the following three historical experiences: Firstly, the demand drag effect driven by supply price-rise increases marginally as the price base rises. A 10% increase in supply-driven price may lead to an average global oil demand decrease of about 0.32 percentage points, and when the oil price exceeds $100, the elasticity of demand damage may expand to 0.8-1.0 percentage points. Secondly, different countries' tolerances to supply-driven price rise vary. Thirdly, during the process of supply-driven oil price rise, the inflection point where Middle East oil demand transitions from benefiting to suffering or where the demand threshold for high oil prices is approximately $100 per barrel. In addition to quantitative measurements, the bank believes that price differentials are also a better perspective to observe demand negative feedback; the weakening trend of refining margin correlations with oil prices in Europe, America, and Asia also shows that weak demand response pressures on midstream profits will further increase after oil prices exceed $100. Demand destruction has begun, but may not yet dominate the rebalancing High-frequency data monitored by the bank shows that negative feedback of Asia and Europe's oil demand has started since April. According to the IEA, the year-on-year growth rate of OECD refined oil demand in April decreased from +0.5% in March to -2.3%, with OECD Europe's refined oil demand dropping from -0.9% in March to -4.1% in April, directly dragging down the overall growth rate by 1.2 percentage points. Japan and South Korea's demand growth rates also widened to -9.5% and -11.7% year-on-year respectively, dragging down the overall growth rate by about 0.6 percentage points. In non-OECD regions, India's refined oil demand growth rate decreased from 3.2% in March to -4.6% in April, with apparent oil consumption in China dropping by about 5.8% year-on-year in April. The new changes since May include the initial signs of pressure on US refined oil demand; according to the EIA, the year-on-year growth rate of US refined oil consumption in the first four weeks of May fell to 1.86%, far below April's 4.6%. The weakening growth trend of oil demand in various regions is also reflected in the trend of refined oil cracking margins. Since April, the cracking margins of refined oil in Europe and Asia have fallen from highs, while the cracking margins of refined oil in the US have remained relatively strong, providing some support to gasoline and other refined oil prices during the peak season. The bank believes that the current level of negative feedback of oil demand may not yet be sufficient to dominate the rebalancing. Global onshore oil inventories officially entered a downward channel in April, consistent with the bank's previous expectations. According to the IEA, OECD oil inventories decreased by about 146 million barrels in April, with the deviation from the five-year average falling to -6%. In the short term, the Strait of Hormuz remains blocked, with reduced Middle East oil shipments of 1.5 million barrels per day, indicating that the pressure of interrupted Middle East goods to ports may continue at least until June. Even considering demand damage, the bank expects global onshore oil inventories to further decrease in May-June, with the deviation of OECD oil inventories from the five-year average expected to decrease to -10% by the end of May and possibly further to -14% by the end of June. Regionally, under the trade rebalancing, pressure on onshore oil inventory consumption may be transiting from Europe and Asia to the US. Rebalancing is not an easy task, lowering the forecast for global oil demand this year Recent fluctuations in market expectations due to the repeated disruptions in US-Iran negotiations. In terms of facts, the impact of negative feedback on demand on the rebalancing fundamentals is still reducing the speed of destocking rather than reversing the direction of destocking. The bank believes that the reasonable center of oil prices is still in an upward channel. As onshore oil inventories continue to decrease, the bank believes that the reasonable center of Brent oil prices for May-June may have risen from $100 per barrel to $120 per barrel, and the current oil price level may not fully reflect the pressure of destocking. Looking ahead, negative feedback of demand may play an important role in the medium-term rebalancing of the oil market. Combining historical negative feedback elasticity of global oil demand to supply shocks and recent actual situations, the bank expects global oil demand in the second quarter of 2026 to face about 3% pressure due to supply shocks, providing a buffer space of about 3 million barrels per day for supply interruptions. Looking ahead, under the benchmark scenario where the Strait of Hormuz gradually reopens in the second half of the year, the bank expects that the additional damage to global oil demand due to supply shocks in the second half of the year may be about 1.5-2 million barrels per day. For the whole year, the bank lowered this year's forecast for global oil demand growth rate to -0.8% (compared to +1% in the annual outlook in November last year). If the Strait of Hormuz remains closed in the second half of the year, the bank expects the reasonable center of oil prices to stay at a higher level for a longer period, causing further damage to oil demand. Under risk scenarios, the bank expects that the additional damage to global oil demand due to supply shocks in the second half of the year may be close to 500,000 barrels per day, and global oil demand this year may decrease by about 2.6%.