The OPEC Reference Basket experienced volatility in March amid falling equity markets although OPEC kept output unchanged. Geopolitical concerns in the Mideast and West Africa renewed the fear premium in the market while declining gasoline inventories in the US strengthened bullish sentiments. The OPEC Reference Basket averaged $58.47/b in March, representing a gain of $4.02 or 7.4%. In the first half of April, the Basket continued to rise , reaching $64.71/b on April 13, due to geopolitical developments in the Mideast.
World economic growth is forecast at 4.7% this year, 0.1% higher than last month following upward revisions to the EU, Japan and China. The forecast for the US has been revised down by 0.1% to 2.3% as data in early 2007 confirm the expected slowdown in the pace of economic activity in the US, but labour markets and incomes continue to surprise on the upside. Economic recovery remains on course in Japan following the stellar performance in the fourth quarter. However, price data remains weak indicating that the Bank of Japan will be slow in raising interest rates again this year. The Japanese economy is forecast to achieve a growth rate of 2.0% from 2.2% last year, 0.2 percentage points higher than last month. The Euro-zone countries show few signs of a slowdown from the fastest pace of growth in six years witnessed in 2006. Growth this year is estimated at 2.3% from the 2.7% reached in 2006. For Developing Countries, most economic indicators point to a strong start for 2007 with China and India leading the way. China is expected to achieve growth of 9.7% while India may see an 8.0% expansion this year.
World oil demand growth in March was not as strong as in the previous month, although oil demand picked up world-wide due to late winter weather in North America and strong economic activities in the Middle East. World oil demand in 2007 is forecast to grow 1.3 mb/d or 1.5%. As a result of late winter, first-quarter oil demand growth in North America was revised up by 0.4 mb/d to stand at 0.7 mb/d y-o-y. However, the warm winter in other OECD regions resulted in total OECD oil demand growth in the first quarter being revised down by 0.3 mb/d to show a decline of 0.1 mb/d.
Non-OPEC supply in 2007 is expected to average 50.7 mb/d, an increase of 1.3 mb/d over the previous year and an upward revision of 83,000 b/d from the last assessment. Preliminary data for March put non-OPEC supply at 50.5 mb/d. The revision is due mainly to baseline revisions for 4Q06 and adjustments for 1Q07 in Malaysia, China and Mexico. In 2006, non-OPEC oil supply averaged 49.5 mb/d, representing an increase of 0.5 mb/d over 2005 almost unchanged from the last assessment. Downward adjustments to USA and Syria were offset by upward revisions to the UK and some Developing Countries. Total OPEC crude production averaged 30.03 mb/d in March almost unchanged from the previous month.
A combination of a prolonged winter in the USA and planned and unplanned refinery outages in the Atlantic Basin as well as higher demand for light distillates and gasoline stock-draws in the USA underpinned product market momentum and lifted refinery margins across the globe in March. Due to falling US gasoline stocks in recent weeks and continuing refinery maintenance in the Atlantic Basin, the persisting bullish sentiment of the product markets may continue in the very short term supporting crude oil prices. However, with the completion of the refinery maintenance and increased output, product markets may lose some of their current bullish momentum in the coming months.
OPEC spot fixtures increased 0.1 mb/d to average 12.8 mb/d, maintaining a steady 65% of global spot fixtures. Similarly, sailings from OPEC were steady with a minor decline of 90,000 b/d. The tanker market for crude oil showed a mixed pattern with rates for VLCCs moving from the Middle East strengthened to a four-month high, supported by strong tonnage demand from both east and west destinations. In contrast, Suezmax tankers displayed some weakness, on the back of limited activities and increased tonnage availabilities. For the clean market, freight rates increased on all reported routes with the East of Suez finally displaying some gains supported by the increased activities from the Middle East and arbitrage opportunities to the west.
Preliminary data shows that OECD total net oil imports decreased 585,000 b/d in February to average 27.3 mb/d. Data showed growth of more than 6% over the same period last year, primarily in crude stocks. In contrast, US crude imports increased 520,000 b/d in March to average around 10.0 mb/d as refineries prepared for the summer season. In March, Japan’s net oil imports rose 218,000 b/d driven by more crude imports and less product exports. China’s crude oil imports showed a slight decline of 70,000 b/d in February to average 3.1 mb/d and product imports decreased by 15%. Crude oil and product imports in India were steady in February as net oil imports averaged 1.9 mb/d indicating y-o-y growth of 1.5%.
Total US commercial stocks fell 4.8 mb to 982 mb at end-March with crude oil stocks rising 8 mb to 333 mb, which corresponds to 7% above the five-year average. Product stocks declined 13 mb to 650 mb, with gasoline stocks falling below the five-year average following eight weeks of consecutive declines. At the end of March, total commercial oil stocks in EU-16 (Eur-15 plus Norway) dropped to 1,152 mb but showed a surplus of 58 mb above the five-year average. Crude oil stocks were slightly above the five-year average, while products were well above the upper limit of the range. Japan’s commercial oil stocks displayed a draw of 15 mb in February to stand at around 186 mb but remained 10% above the five-year average.
The demand for OPEC crude in 2007 is expected to average 30.3 mb/d, a decline of 0.14 mb/d from the previous year. On a quarterly basis, the demand for OPEC crude is expected at 30.9 mb/d, 29.3 mb/d, 30.4 mb/d and 30.5 mb/d respectively. In 2006, the estimated demand for OPEC crude averaged 30.42 mb/d compared to OPEC production which averaged 30.90 mb/d.