- The OPEC Reference Basket price fell by $3.77/b or 6% to reach $64.59/b in July. Bearish developments in the market including a drop in US consumer confidence in June and increasing jobless claims have overshadowed other supporting factors in the first half of July. Market sentiment turned positive later in July, as bullish reports about corporate earnings, robust home sales and a moderation in the economic contraction in the US lifted equities and crude prices. This triggered a fresh influx of funds into energy market, pushing prices above $70/b in August. Despite this positive price movement, the market is still fundamentally weak amid ample stocks of crude and products. Price movements in the very short- to near-term will depend largely on economic developments.
- The world economy in 2009 is expected to contract by 1.4%, unchanged from last month’s forecast. In 2010, the forecast for the world economy was revised up slightly from 2.3% to 2.4%. The US is now seen to decline by a sharper-than-expected 2.8% in 2009 before returning to growth of 1.2% in 2010. Japan will decline by 6.0% in 2009 and then return to positive growth of 1.1% in 2010. Within the emerging economies, there was an upward revision for China to now stand at 7.2% in 2009 and 8.0% in 2010. Developing Asia remains the main growth engine in 2009 and 2010.
- Although US oil consumption is still showing a massive reduction, increases elsewhere in the world have helped to offset this decline. As a result, the forecast for world oil demand growth in 2009 remains unchanged, showing a decline of 1.6 mb/d. Chinese June oil demand picked up after a devastating contraction in the first quarter, while India’s oil demand also showed significantly higher growth. In 2010, world oil demand is expected to halt its decline and grow by 0.5 mb/d. As in recent years, most of the increase will take place in the non-OECD, mainly China, India, Middle East and Latin America. US gasoline demand is expected to improve from the sharp decline seen this year but will remain a wild card in 2010.
- Non-OPEC oil supply in 2009 is forecast to grow by 0.3 mb/d, following an upward revision mainly due to higher-than-expected supply from Russia. In 2010, non-OPEC oil supply is seen increasing by 0.4 mb/d, supported by anticipated growth in Brazil, US, Azerbaijan, and Kazakhstan, as well as an historical upward adjustment to Russia. OPEC NGLs and non-conventional oils are expected to increase by 0.5 mb/d in 2010 to average 5.3 mb/d. In July, total OPEC crude oil output averaged 28.7 mb/d, representing a gain of 160 tb/d over the previous month.
- Reduced refinery runs at the peak of the driving season as well as increasing optimism about economic recovery have slightly improved product market sentiment, providing support for refining margins. However, due to ample product stocks, especially distillates, the current sentiment is expected to soften further with the approaching end of the driving season and arrival of autumn refinery maintenance. This could negatively impact crude fundamentals in the coming months.
- OPEC spot fixtures declined in July by 21% compared to the previous month. Sailings from OPEC were relatively steady. Freight rates in the crude oil tanker market declined by 25% in July with the VLCC sector falling 15%. Storing crude oil at sea lost momentum in June, although the recent deepening of the contango structure could again encourage builds in floating storage. Clean spot freight rates declined by a lower percentage of 5% on average with higher interest to store middle distillates afloat.
- US commercial oil stocks surged 11 mb, the tenth build in a row, to move above 1,120 mb at the end of July, the highest since 1990. The build was driven by products while crude oil stocks continued to decline for the third consecutive month. US gasoline stocks moved against their seasonal trend, adding 1.7 mb at the peak of the driving season. Distillate inventories jumped 6.5 mb to 161.5 mb representing an overhang of 30 mb or 24% over the five-year average. Japan’s commercial oil stocks fell 6.1 mb in June to stand at 173 mb but remained very comfortable considering weakening domestic sales.
- The demand of OPEC crude oil in 2009 is estimated to average 28.4 mb/d, a decline of 2.3 mb/d from the previous year. In 2010, the demand for OPEC crude is expected to average 28.0 mb/d a drop of around 0.5 mb/d from a year earlier.