Oil Market Highlights - Jul 13

The OPEC Reference Basket averaged $101.03/b in June, representing an increase of 38¢ over the previous month. In the first half of the year, the Basket averaged $105.09/b, a decline of $6.96. Most component values improved in June, particularly sour grades, which were supported by increased buying interest and better refining margins. Nymex WTI found support from positive economic data from the US, reduced Canadian crude shipments due to flooding, and restricted crude production from oil sand projects. However, later in the month, crude futures prices weakened on data showing slowing economic growth in China and hints from the US Federal Reserve that it may start reining in quantitative easing.

World economic growth for 2013 has been revised down to 3.0% from 3.2%, driven mainly by slowing growth in emerging economies. In 2014, an expected rebound in the OECD economies should lead to global growth of 3.5%. US growth remains at 1.8% for 2013 and is forecast to grow by 2.5% next year. Euro-zone’s growth remains unchanged at minus 0.6% for this year, but is expected to rebound to plus 0.6% in 2014. Japan’s growth for the current year has been revised up to 1.8% from 1.5%, but is forecast to slow to 1.4% next year. Decelerating total investments and slowing exports continue to impact China and India. China’s growth in 2013 has been revised down to 7.7% from 7.9% and is forecast to grow at the same level in 2014. India’s growth this year has been revised down to 5.6% from 6.0%, and is expected to expand by 6.0% in the coming year.

World oil demand growth for 2013 now stands at around 0.8 mb/d, following a marginal downward revision. This has been mainly due to the release of the latest actual data for 1Q13 and preliminary data for 2Q13. In 2014, world oil demand is projected to grow at a higher rate of 1.0 mb/d to average 90.7 mb/d. This represents an around 0.3 mb/d rise from the growth predicted for the current year. In 2014, non-OECD countries are projected to lead oil demand growth with 1.2 mb/d, while OECD consumption is seen continuing to decline but at a lower rate, contracting by 0.2 mb/d. The pace of recovery in growth in major economies around the globe is one of the main uncertainties affecting world oil demand projections in 2014.

Non-OPEC oil supply is expected to increase by 1.0 mb/d in 2013, supported by anticipated growth from OECD Americas, the FSU, and China. In 2014, non-OPEC supply is forecast to grow by 1.1 mb/d. The US, Canada, Brazil, the Sudans, Kazakhstan, and Australia are expected to be the main contributors to the supply increase, while Norway, Syria, Mexico, and the UK are forecast to see the largest declines. OPEC NGLs and non-conventional oils are seen averaging 6.0 mb/d in 2014, indicating an increase of 0.1 mb/d over the current year. In June, according to secondary sources, OPEC production is estimated at 30.38 mb/d, a decline of 0.31 mb/d from a month earlier.

Product markets exhibited a mixed performance in June. The top of the barrel weakened in the Atlantic Basin, with gasoline losing ground due to lower demand as the driving season has so far not provided the strong boost expected. In contrast, middle distillates strengthened worldwide on the back of a slight recovery in demand amid temporary tightening in some regions, which allowed the margins to recover in Asia and Europe.

Tanker market sentiment was mixed in June as VLCC freight rates increased, while Suezmax and Aframax spot rates declined. Shipments from the Middle East to Asia supported VLCC rates while low tonnage requirements and delays in the US Gulf influenced the Suezmax and Aframax markets. Product spot freight rates in June fell 10%, reflecting limited activities and ample tonnage availability. OPEC sailing dropped by 0.7% in June.

Total OECD commercial oil stocks rose by 11.7 mb in May for the third consecutive month, but remain broadly in line with the five-year average. Crude stocks stood at a comfortable level, with a surplus of 13 mb over the five-year average, while product stocks remained tight showing a deficit of 17.3 mb. In days of forward cover, OECD commercial inventories stood at 58.9 days, 1.2 days over the five-year average. Preliminary data for June shows that US total commercial oil stocks rose by 14.2 mb, showing a surplus of 48.2 mb over the five-year average. US crude oil stocks at the end of June stood at 33.8 mb above the five-year average, while products showed a surplus of 14.4 mb.

Demand for OPEC crude for this year is forecast to average 29.9 mb/d, almost unchanged from the previous report and a decline of 0.4 mb/d from 2012. Based on the initial 2014 forecasts for world oil demand and non-OPEC supply (including OPEC NGLs), demand for OPEC crude next year is projected to average 29.6 mb/d, representing a decline of 0.3 mb/d.