Crude Oil Price Movements
The OPEC Reference Basket increased for the fifth-straight month in January, gaining a sharp 7.7% to average $66.85/b, the highest monthly average since November 2014. Oil prices were supported by continuing efforts by OPEC and participating non-OPEC producers to balance the market and ten consecutive weeks of crude inventory draws amid healthy economic growth and improving oil demand. ICE Brent was $4.99 higher at $69.08/b in January, while NYMEX WTI surged $5.71 to $63.66/b. The ICE Brent/NYMEX WTI spread narrowed 73¢ to $5.42/b. Hedge funds raised net long positions in ICE Brent and NYMEX WTI to 1.08 million contracts, a new all-time high record. The market structures for Brent, WTI and Dubai are in sustained backwardation. In the first week of February, crude oil futures lost around $6/b from the end of January amid an overall decline in equity markets and a slide in the US dollar as well as stronger-than-expected US supply and a build in US inventories.
The global GDP growth forecast was revised up by 0.1 percentage points to 3.8% for both 2017 and 2018, mainly supported by advanced economies. US growth was revised up in 2018 to 2.7%, after growth of 2.3% in 2017. Growth in the Euro-zone was lifted to 2.5% in 2017 and 2.2% in 2018. Japan’s growth forecast remains unchanged in both 2017 and 2018 at 1.8% and 1.6%, respectively. While China’s 2017 growth was better than expected at 6.9%, the 2018 growth forecast remains unchanged at 6.5%. Also, India’s GDP growth forecast remains unchanged at 7.2% in 2018, after growth of 6.5% in 2017.
World Oil Demand
World oil demand growth in 2017 is estimated to increase by 1.60 mb/d, representing an upward adjustment of some 30 tb/d compared to last month’s projections, mainly to reflect the continuing better-than-expected data in OECD Europe in 3Q17. Total world oil demand stood at 97.01 mb/d in 2017. In 2018, world oil demand is foreseen to reach 98.60 mb/d, representing growth of 1.59 mb/d, 60 tb/d higher than the previous month’s projections and mainly reflecting the positive economic outlook.
World Oil Supply
Non-OPEC supply in 2017 was revised up by 0.07 mb/d, mainly due to an upward revision in the OECD, to average 57.86 mb/d, representing growth of 0.86 mb/d. For 2018, non-OPEC supply forecast was revised up by 0.32 mb/d, to average 59.26 mb/d, representing growth of 1.40 mb/d, which was also revised up by 0.25 mb/d. Expectations for higher production in the US, UK and Brazil, as well as lesser declines in Mexico and China were the main reasons behind the upward adjustment. OPEC NGLs and nonconventional liquids’ production averaged 6.31 mb/d in 2017, up by 0.17 mb/d y-o-y. OPEC NGLs are expected to grow by 0.18 mb/d to average 6.49 mb/d in 2018. In January 2018, OPEC crude oil production decreased by 8 tb/d, according to secondary sources, to average 32.30 mb/d.
Product Markets and Refining Operations
Product markets in the Atlantic Basin showed mixed performance in January as refining margins in the US turned around from the declining trend recorded in the previous month, showing some gains, mainly at the top of the barrel supported by cold weather-related refinery outages. Meanwhile, in Europe, product markets lost some ground with weakening seen at the bottom of the barrel due to supply-side pressure. In Asia, product markets weakened, with losses seen all across the barrel, except for the middle distillate complex, pressured by slower seasonal demand. Due to higher scheduled maintenance in February, product markets in the USGC are expected to receive some support on the back of lower product supplies.
Dirty tanker spot freight rates experienced a general downward trend in January, which affected vessels of different classes on all reported routes. VLCC, Suezmax and Aframax average spot freight rates declined by 17%, 31% and 13% m-o-m, respectively. The decline was driven by low tonnage demand, limited inquiries and port maintenance as well as a prolonged tonnage list. Similarly, clean tanker spot freight rates were weak, mainly as fixtures to eastern destinations showed lower rates than in the previous month.
Total OECD commercial oil stocks fell in December to stand at 2,888 mb. At this level, OECD commercial stocks were 109 mb above the latest five-year average. Crude and products stocks indicated a surplus of around 100 mb and 9 mb above the seasonal norm, respectively. In line with the existing overhang, the market is only expected to return to balance towards the end of this year. In terms of days of forward cover, OECD commercial stocks stood at 61.0 days in December, some 1.1 days higher than the latest five-year average.
Balance of Supply and Demand
Demand for OPEC crude in 2017 is estimated to stand at 32.8 mb/d, some 0.6 mb/d higher than the 2016 level. In 2018, demand for OPEC crude is forecast at 32.9 mb/d, slightly higher than the 2017 level.
Source: OPECPrevious Next
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