The OPEC Reference Basket’s monthly average rallied $3.72 or over 7% in February to average $54.45/b, after dropping
nearly 13% in January. While a cold snap in the USA revived market bullishness, concern in the geopolitics kept volatility
intact. In the first half of March, refinery problems in the USA amid draws on petroleum product inventories kept alertness in
place. Improved refining margins in Europe were also seen lending support to market firmness as summer fuel stockpiling
emerged... The Basket averaged $57.78/b in the first half of March, after peaking to $58.64/b earlier in the month. On
14 March, the Basket stood at $57.14/b.
World economic growth at 5.3% in 2006 and 4.6% in 2007 remains unchanged from last month. Developing Countries,
excluding China, are forecast to grow at 5.7% in 2007 from 6.3% in 2006, while OECD growth for 2007 is forecast at 2.5% in
2007 from 3.1% in 2006. Data for the US is mixed, suggesting moderating growth in 2007, amidst worries on the wider
financial implications of problems in the US sub-prime mortgage market. The economic recovery appears to be gaining
momentum in Japan, while in the Euro-zone, economic indicators point to another year of solid growth, albeit at lower rates
than last year. The recent turmoil in world financial markets which started on 27 February in China and spread to equity
markets worldwide fueled fears of slowdown in the global economy. However, within days, markets had stabilized, recouping
some of the losses, but remain nervous, especially in recent days, due to concerns in the US housing sector. Central Banks
have been quick to respond, reassuring markets that the underlying economic conditions remained sound. However, potential
downside risks to the world economic outlook are coming to the fore.
Oil demand in North America picked up pace with the belated start to winter. Fuel oil demand was strong, affecting total
world oil demand. World oil demand growth for 2007 is forecast to grow by 1.3 mb/d or 1.5%, an upward revision of
0.1 mb/d from the last MOMR. First-quarter oil demand in North America was revised up by 0.1 mb/d to average
25.45 mb/d, representing growth of 0.3 mb/d. Warm winter in other OECD regions led to a major decline in oil
demand. For 2006, warm weather in the first and fourth quarters negatively affected global oil demand. The product
which declined the most was fuel oil, mainly due to fuel switching in the OECD countries. Total world oil demand
growth for 2006 is estimated at 0.8 mb/d or 1.0%, broadly unchanged from the last MOMR.
Non-OPEC supply in 2007 is expected to average 50.6 mb/d, an increase of 1.2 mb/d over the previous year and a downward
revision of 46,000 b/d from the last assessment, mainly due to baseline revisions for 4Q06. Preliminary data for February puts
non-OPEC supply at 50.5 mb/d. In 2006, non-OPEC oil supply averaged 49.5 mb/d, representing an increase of 0.5 mb/d
over the previous year and a downward revision of 17,000 b/d compared with the last assessment. The revisions were
mainly due to adjustments in the final quarter of that year. Downward revisions in the USA and some Developing
Countries were partly offset by upward revisions in the UK sector. OPEC crude oil production averaged 29.96 mb/d in
February, broadly unchanged from the previous month.
Continued cold weather in the USA along with refinery snags and pipeline problems provided support for product and
crude prices. However, product prices in the USA and Asia failed to keep up with crude prices, leading to marginally
lower refinery margins in those markets. In Europe, product market performance was better than in the crude market,
resulting in a rise in Brent crude oil refinery margins. A draw on product stocks in the USA over the last few weeks,
along with refinery maintenance and unplanned refinery outages and higher demand from the agricultural sector, may
lend support to crude and product prices over the coming weeks. However, with the completion of the refinery
maintenance schedule, product markets are expected to lose some of their current strength and exert pressure on refinery
margins and crude oil prices.
Preliminary data shows that OECD crude oil imports averaged 30.7 mb/d in January, an increase of 323,000 b/d over the
previous month. Product imports rose by 0.4 mb/d to average 12.6 mb/d. In the USA, crude imports fell 0.58 mb/d to
9.5 mb/d in February, while Japan’s imports edged down 100,000 b/d in the same month. China’s net crude oil imports
rebounded to reach 3.16 mb/d in January, a gain of around 645,000 b/d over the previous month, resulting from a
0.5 mb/d growth in imports versus a 144,000 b/d drop in exports. China’s total net oil imports in January increased by
1.0 mb/d over the previous month and 11% over the same month last year. India’s trade did not see any significant
changes in January with crude imports at 2.36 mb/d and net product exports at 0.8 mb/d.
Lower refining runs in USA and Europe due to seasonal maintenance and unplanned shutdowns left product inventories lower
in these two regions in February. US product stocks decreased by 46.6 mb while crude inventories saw only a minor gain of
0.3 mb, leaving total commercial oil stocks at 987 mb, representing a drop of 46.3 mb from the previous month. In EU-16
(Eur-15 plus Norway), total oil stocks stood at 1,143 mb, down 11 mb from the previous month. Almost two thirds of the
decline in EU-16 came from products. Nevertheless, both US and EU-16 stocks remained 16 mb and 51 mb above the fiveyear
average. In January, Japan’s commercial oil stocks reversed the trend, increasing 2 mb to 200 mb, implying a surplus of
16% above the five-year average, but preliminary data for February showed that stocks moved down below 190 mb.
Demand for OPEC crude in 2006 is estimated to average 30.4 mb/d. In 2007, the demand for OPEC crude is expected to
average at the same level of around 30.4 mb/d. On a quarterly basis, the demand for OPEC crude is expected at 31.3 mb/d,
29.4 mb/d, 30.4 mb/d and 30.5 mb/d respectively.