Crude Oil Price Movements
The OPEC Reference Basket averaged $46.93/b in July, representing a gain of about 4% m-o-m. Y-t-d, the Basket was almost 34% higher at $49.75/b. Oil futures in New York and London recovered in July, both ending the month above $50/b, supported by falling inventories, higher demand and stronger refining margins. NYMEX WTI improved 3.3% to $46.68/b and ICE Brent ended 3.4% higher at $49.15/b. Y-t-d, both were more than 22% higher. The Brent-WTI spread widened to $2.47/b in July, despite successive weeks of US crude inventory draws. In July, short covering, rather than increased long positions, drove oil prices higher, as hedge funds reduced short positions by the equivalent of 163 mb.
The forecasts for world economic growth in 2017 and 2018 remain unchanged from the previous report at 3.4%. OECD growth has performed better than anticipated in the current year, particularly the Euro-zone, and is forecast to grow by 2.0% in 2017 and 2018. India is expected to grow by 7.0% in 2017 and 7.5% in 2018. Brazil and Russia are both forecast to expand their recovery to 0.5% and 1.2% in 2017, respectively, and 1.5% and 1.4% in 2018. China has performed better than expected so far this year and is now forecast to grow by 6.7% in 2017 and by 6.3% in 2018.
World Oil Demand
World oil demand growth in 2017 is now expected at 1.37 mb/d, following an upward revision of 0.1 mb/d mainly to reflect better-than-expected data from OECD regions for 2Q17. Total oil demand anticipated to average 96.49 mb/d this year. For 2018, global oil demand growth is projected to increase by 1.28 mb/d, slightly higher than last monthís projections, with total world consumption averaging 97.77 mb/d. OECD will contribute positively to oil demand in 2018, adding some 0.21 mb/d, and non-OECD economies will make up the lionís share with 1.07 mb/d.
World Oil Supply
Non-OPEC oil supply growth in 2017 was revised down by 28 tb/d to stand at 0.78 mb/d, representing a total non-OPEC supply of 57.77 mb/d. Weaker-than-expected output in OECD America in 2Q17 was the main reason for the downward adjustment. For 2018, the non-OPEC oil supply growth forecast was also revised down by 42 tb/d to 1.10 mb/d to average 58.87 mb/d. The US, Brazil and Canada are expected to be the main drivers of growth, offsetting declines in Mexico, China, Columbia and elsewhere. OPEC NGL production is expected to grow by 0.18 mb/d to average 6.49 mb/d in 2018. In July, OPEC production increased by 173 tb/d to average 32.87 mb/d, according to secondary sources.
Product Markets and Refining Operations
Refinery margins in the Atlantic Basin saw mixed movements in July. US margins recorded solid gains as crack spreads for all products increased due to healthy domestic demand. In contrast, margins in Europe weakened in response to products oversupply, limited export opportunities and higher feedstock costs. Meanwhile, margins in Asia strengthened, supported by robust seasonal demand.
Dirty tanker spot freight rates mostly experienced negative developments in July, or remained at the previously low levels. VLCC and Suezmax average spot freight rates stayed almost flat compared with the previous month, while Aframax rates dropped by 6% compared to a month earlier. The decline was due to low tonnage demand, limited inquiries, new tanker deliveries and port maintenance.
Total OECD commercial oil stocks fell in June to stand at 3,033 mb. At this level, OECD commercial oil stocks are 252 mb above the latest five-year average. Crude and product stocks indicate a surplus of around 142 mb and 110 mb above the seasonal norm, respectively. In terms of days of forward cover, OECD commercial stocks stood at 63.8 days in June, some 4.1 days higher than the five-year average.
Balance of Supply and Demand
Demand for OPEC crude in 2017 is estimated to stand at 32.4 mb/d, some 0.4 mb/d higher than the 2016 level. In 2018, demand for OPEC crude is forecast at 32.4 mb/d, at the same level as in 2017.