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Oil Market Highlights - Feb 12

Source: OPEC_RP120201 2/9/2012, Location: Europe

- The OPEC Reference Basket averaged $111.76/b in January, representing a gain of $4.42 or 4.1% over the previous month. Prices were on an upward trend heading into January, supported by bullish and better-than-expected US economic data and revived geopolitical tensions in the Middle East, which helped to boost the risk premium in crude oil prices. A weakening of the dollar against the euro also provided some support; however, gains were limited by weak demand growth concerns stemming from uncertainties about economic growth in the EU and credit downgrades to some key European countries. Crude futures also rose higher in January, with WTI up $2.15 to $100.82/b and ICE Brent up $4.06 to $111.78/b.

- World economic growth has been revised down slightly to 3.4% in 2012 and remains at 3.6% for 2011. The US continues recovering and is expected to grow by 2.2% in 2012. Japan’s 2012 forecast has been revised down to 1.8% from 1.9% previously, amid efforts to combat the after-effects of last year’s triple disasters. The Euro-zone’s deceleration has continued and 2012 growth expectations were revised to minus 0.2% from plus 0.2% previously. Emerging markets seem to be experiencing slower momentum compared to last year. As a result, the forecasts for China were revised down from 8.5% to 8.2% and for India from 7.4% to 7.2% for 2012. While global output activity has shown some recovery in the past weeks, downside risks prevail and the Euro-zone debt crisis, slowing growth in the developing economies, and the fragile improvement in the US warrant close monitoring.

- World oil demand growth in 2012 has been revised down by 120 tb/d to 0.9 mb/d, while the forecast for 2011 remains unchanged at 1.0 mb/d. Recent economic setbacks have pushed the global demand forecast lower. Worries about the US economy along with EU debt concerns are adding to the uncertainties impacting world oil consumption this year. High retail petroleum prices have led to a further reduction in transport fuel usage. Non-OECD regions, especially China, India, the Middle East, and Latin America, are expected to contribute most of the forecast oil demand growth this year. Waning OECD economies are negatively affecting the oil market and imposing a considerable range of uncertainty over the short term.

- Non-OPEC supply is estimated to have increased by 0.1 mb/d in 2011, following a minor downward revision, mainly due to adjustments to actual fourth quarter production data. In 2012, non-OPEC oil supply is forecast to increase by 0.7 mb/d, following a minor downward revision. Brazil, the US, Canada, Colombia, and Russia are seen as the major contributors to supply growth in 2012. OPEC NGLs are expected to increase by 0.4 mb/d in 2012, following similar growth the previous year. In January, total OPEC crude oil production averaged 30.90 mb/d, according to secondary sources, representing a marginal increase of about 56 tb/d over the previous month.

- Expectations of tighter supply following the closure of several refineries in the Atlantic Basin helped product markets to exhibit a sharp recovery in January, despite weak demand in the region. This situation, along with additional support coming from stronger demand in Asia, allowed refinery margins to increase across the globe.

- In the tanker market, clean and dirty spot freight rates declined in January due to increased new Worldscale flat rates on higher bunker prices, plentiful tonnage supply, improved weather conditions, and lower tonnage demand. In January, VLCC rates decreased 4%, Suezmax dropped 2%, and Aframax declined 20%. OPEC sailings remained steady in January, averaging 23.6 mb/d, while fixtures indicated growth of 16%.

- US commercial oil stocks in January reversed the downward trend of the last four months, growing by 11.5 mb. Despite this build, inventories remain 21.0 mb or 2.0% below a year ago, but 14.4 mb or 1.4% above the five-year average. Crude and products increased by 9.2 mb and 2.3 mb respectively. The most recent monthly data shows commercial oil inventories in Japan fell by 7.4 mb in December, down for the third consecutive month. Stocks moved to a deficit of 1.7% compared to a year ago and stood 6.4% below the five-year average. The bulk of the stock draw came from products, which declined by 7.0 mb, while crude edged down 0.4 mb.

- Demand for OPEC crude in 2012 is projected to average 30.0 mb/d, around 0.1 mb/d lower than in the previous report and about 0.1 mb/d less than in the previous year. The demand for OPEC crude in 2011 remains unchanged from the previous assessment at 30.1 mb/d, some 0.4 mb/d above the 2010 level.

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