Crude Oil Price Movements
The OPEC Reference Basket declined 8.1% in June to $45.21/b. Year-to-date, the ORB value was 38.3% higher at $50.21/b. Crude futures tumbled in a bear market. ICE Brent settled down 7.5% to $47.55/b and NYMEX WTI dropped 6.9% to $45.20/b, on concerns about rising global supply. Year-to-date, ICE Brent and NYMEX WTI prices were 28% and 26% higher, respectively. The ICE Brent-NYMEX WTI spread narrowed to $2.36/b. Money managers embarked on a new cycle of short-selling in June, which added to the downward pressure on prices.
World economic growth in 2018 is forecast at 3.4%, the same level of growth forecast for 2017. This reflects a continued strengthening of the global recovery which is becoming more balanced, with stability in the oil market remaining a key determinant. OECD growth is forecast at a slightly lower level of 1.9% in 2018, compared to 2.0% in 2017. India is forecast to grow by 7.5% in 2018, compared to 7.0% in 2017. Brazil and Russia are both forecast to expand their recovery to 1.5% and 1.4%, respectively, compared to 0.5% and 1.2% in 2017. China will continue to grow at a slightly lower, but still considerable 6.2% in 2018, compared to 6.6% in 2017.
World Oil Demand
Global growth in 2017 is expected to be around 1.27 mb/d, broadly unchanged from previous month, to average 96.4 mb/d. The latest data shows demand in India and China have remained robust, reflecting healthy manufacturing and road construction activities in the former, and rising demand in the transportation and industrial sectors in the latter. For 2018, world oil demand is anticipated to rise by 1.26 mb/d, slightly below the current year’s growth, to average 97.6 mb/d. The OECD is expected to see growth of 0.20 mb/d, while the non-OECD is forecast to increase by 1.07 mb/d.
World Oil Supply
Non-OPEC oil supply growth was revised marginally lower to 0.80 mb/d in 2017, averaging 57.82 mb/d. The downward revision was mainly driven by expected lower OECD oil supply in 2H17. For 2018, non-OPEC oil supply is expected to grow by 1.14 mb/d to average 58.96 mb/d. US, Brazil, Canada, Russia, Kazakhstan, Congo and the UK are expected to be the main drivers of growth, while declines are foreseen in Mexico, China, Colombia and Azerbaijan. OPEC NGLs production in 2018 is expected to grow by a higher 0.18 mb/d to average 6.49 mb/d, partly due to Equatorial Guinea joining OPEC. In June, OPEC crude production rose by 393 tb/d to average 32.61 mb/d, according to secondary sources.
Product Markets and Refining Operations
Refinery margins in the US declined further in June, as the US gasoline crack spread dropped despite the onset of the summer driving season. High inventory levels added to the weakness in the middle of the barrel, outpacing increases in the gasoil cracks. Meanwhile, in Europe and Asia, margins inched up on healthy demand amid additional export opportunities outpacing plentiful supply.
Dirty tanker spot freight rates were weak in general in June. VLCC freight rates declined 6%, while the drop in Suezmax and Aframax spot rates was greater, falling by 20% each, compared to May. The decline in dirty tanker spot freight rates came on the back of growing tonnage availability, as the market was not active enough to absorb the expansion in capacity. Similarly, clean tanker sentiment showed no improvements on average in June.
Total OECD commercial oil stocks fell in May to stand at 3,015 mb. At this level, OECD commercial oil stocks are 234 mb above the latest five-year average. Crude and product stocks indicate a surplus of around 148 mb and 86 mb above the seasonal norm, respectively. In terms of days of forward cover, OECD commercial stocks stood at 63.5 days in May, some 3.6 days higher than the latest five-year average.
Balance of Supply and Demand
Demand for OPEC crude in 2017 is estimated at 32.3 mb/d, representing an increase of 0.3 mb/d over the 2016 level. In 2018, the demand for OPEC crude is projected at 32.2 mb/d, around 0.1 mb/d less than this year.