11/03/2018

#Oil Market Highlights

Oil Market Highlights
Crude Oil Price Movements In September, the OPEC Reference Basket increased sharply by almost 7%, or $4.92 m-o-m, to average $77.18/b the highest since October 2014. Crude oil futures prices also increased for the month, mainly supported by geo-political tension, growing concerns over a shortage in global oil supply and low US oil inventories, particularly in Cushing, Oklahoma. ICE Brent was $5.27 higher at $79.11/b compared with the previous month, NYMEX WTI was up $2.24 at $70.08/b and DME Oman increased by $6.08 to $78.75/b. Year-to-date (y-t-d), ICE Brent was $20.23 higher at $72.74/b, NYMEX WTI increased by $17.43 to $66.79/b and DME Oman was up $19.25 at $70.48/b, compared to the same period a year earlier. The Brent-WTI spread widened to average $9.02/b for the month. Speculative net long positions ended mixed, significantly higher for ICE Brent, while lower for NYMEX WTI. As for market structure, the backwardation in Dubai expanded sharply in September, while that of WTI eased. The Brent market structure flipped into backwardation amid concerns over a shortage global oil supply. Apart from Asian grades, the global sour discount to sweet crudes decreased due to an anticipated tightening of sour crude and high availability of sweet crude. World Economy The global economic growth forecast for 2018 was revised down slightly by 0.1 percentage point (pp) to now stand at 3.7%, due mainly to slowing growth in some emerging and developing economies. The 2019 forecast remains unchanged at 3.6%. In the OECD, growth in the US is assessed unchanged at 2.9% in 2018 and 2.5% in 2019 and Euro-zone growth remains at 2.0% for 2018 and 1.9% for 2019. GDP growth in Japan remains at 1.1% in both 2018 and 2019. In the non-OECD countries, India’s and China’s growth forecasts remains unchanged at 7.6% and 6.6% in 2018, respectively, and 7.4% and 6.2%, respectively, in 2019. Growth in Brazil was revised down by 0.1 pp to 1.1% in 2018, and by 0.2 pp to 1.8% in 2019. Russia’s GDP growth forecast is unchanged to stand at 1.6% in 2018 and 1.7% in 2019. World Oil Demand In 2018, world oil demand is expected to grow by 1.62 mb/d, a minor downward revision from last month’s projection. In the OECD region, oil demand saw healthy growth in all three main OECD regions, particularly in the Americas over 1H18. In contrast, the non-OECD region, mainly Latin America and the Middle East, saw weaker oil requirements in 1H18 as well as slower economic projections, which has led to a net downward revision of 20 tb/d from last month’s report. Total oil demand for 2018 is now estimated at 98.82 mb/d. In 2019, world oil demand growth is forecast to rise by 1.41 mb/d, a minor downward adjustment of 20 tb/d from the previous month’s assessment, mainly reflecting the less optimistic economic projections in the non-OECD regions of Latin America and the Middle East compared to last month. Total world oil demand in 2019 is now projected to surpass 100 mb/d for the first time and reach 100.23 mb/d. World Oil Supply Refinery margins in all the main trading hubs weakened in September, on retreating demand further exacerbated by nature-related events, despite the onset of peak refinery maintenance season. In the US, high refinery runs have kept product inventories well sustained fuelling bearish sentiment and thus softening the product market. In Europe, product markets lost ground, mostly pressured by gasoline, naphtha and fuel oil weakness, along with high feedstock costs, despite support from planned and unplanned outages reported during the month. In Asia, losses at the top and bottom of the barrel were partially offset by support from rising retail fuel prices due to a tightening gasoil market. Product Markets and Refining Operations Refinery margins at all main trading hubs recorded gains in August as several refinery outages prompted product supply disruptions, which led to strengthening at the top and middle of the barrel. In the US, product markets strengthened, supported mainly by higher product exports, particularly to Latin America. In Europe, declining Amsterdam-Rotterdam-Antwerp product inventories resulted in tighter product balances, which provided substantial support to refining margins. Meanwhile in Asia, refining margins strengthened on the back of lower refinery intakes caused by unplanned shutdowns and bullish market sentiment. Tanker Market Dirty tanker market sentiment was mixed in September. On average, dirty tanker freight rates were up by 4% from the month before, as a result of higher rates for Suezmax and Aframax, while VLCC rates remained flat. The overall dirty tanker market continued to suffer from an oversupply of ships, which mostly pressured freight rates. Relative gains were achieved in the Suezmax and Aframax classes due to the hurricane season, in addition to transit and port delays in several areas. Average clean tanker spot freight rates were also slightly positive, however gains were limited. Stock Movements Preliminary data for August showed that total OECD commercial oil stocks rose by 14.2 mb m-o-m to stand at 2,841 mb. This was 165 mb lower than the same time one year ago, and 47 mb below the latest five-year average. Crude stocks indicated a deficit of 6 mb, while products stocks witnessed a deficit of 41 mb. However, OECD commercial stocks remain 271 mb above the January 2014 level. In terms of days of forward demand cover, OECD commercial stocks rose by 0.5 days m-o-m in August to stand at 59.3 days. This was 3.8 days below the same period in 2017 and 2.5 days lower than the latest five-year average. Balance of Supply and Demand Demand for OPEC crude in 2018 is estimated at 32.7 mb/d, 0.8 mb/d lower than the 2017 level. In 2019, demand for OPEC crude is forecast at 31.8 mb/d, around 0.9 mb/d lower than the estimated level in 2018.  

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