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Oil Market Highlights-Sep 10

Source: OPEC_RP100901 9/9/2010, Location: Europe

- The OPEC Reference Basket moved within a range of $70-79/b in August to average $74.15/b, representing an increase of $1.64 or 2.3% over the previous month. The Basket started the month just under $79/b before falling to below $70/b on 24 August as market sentiment deteriorated on disappointing macroeconomic data across the OECD. The Nymex WTI front month contract moved in line with equities to average $76.67/b in August, up 28¢ from the previous month. Over the same period, ICE Brent reached $77.12/b, representing a gain of $1.76/b or 2% and a premium of 45¢ over WTI. On 8 September, the OPEC Basket stood at $74.04/b.

- World economic growth in 2010 remains unchanged since the previous report at 3.9%, while 2011 has been revised down slightly to 3.6%. The imbalance in global growth has intensified with a deceleration becoming apparent in most of the OECD, while developing countries continue to expand. Growth in the US and Japan have been revised down due to the diminishing impact of stimulus packages. US growth stands at 2.6% in 2010 and 2.3% in 2011, while Japan is expected to grow by 2.5% and 1.3% respectively. The Euro-zone gained surprising momentum in 2Q10 and is forecast to grow at 1.2% in 2010 and 1.0% in 2011. Supported by domestic demand, India is expected to expand at 8.2% in 2010 and 7.7% in 2011. China seems to be successfully cooling down the economy with the forecast for 2010 unchanged at 9.5%, while 2011 has been lowered slightly to 8.6%.

- World oil demand growth in 2010 remains broadly unchanged at 1.0 mb/d. Global oil demand was higher than expected in the first half of the year, supported by stimulus packages in key consuming countries. With these winding down, demand in the second half is expected to move lower. In 2011, world oil demand growth is expected to continue at the current level of 1.0 mb/d, unchanged from the last assessment. Non-OECD countries will remain the key contributors to demand growth, led by China, India, the Middle East and Latin America.

- Non-OPEC oil supply in 2010 is expected to grow by 0.9 mb/d over the previous year, following an upward revision of 130 tb/d since the last assessment. In 2011, non-OPEC oil supply is forecast to grow by 0.4 mb/d over the previous year. OPEC NGLs and non-conventionals are expected to average 4.8 mb/d in 2010 and 5.3 mb/d in 2011, representing growth of 0.5 mb/d for both years. In August, OPEC crude oil production stood at 29.15 mb/d, representing a marginal decline from the previous month.

- With product stocks considerably above historical levels at the end of the driving season, product markets remained under pressure, especially in the US and Europe. Strong demand for middle distillates helped prevent a deeper drop in refining margins, although this was limited by high inventory levels. As the cut in refinery runs is not likely to offset the pressure of the stock overhang, the persisting bearish situation in the product markets is likely to continue over the coming months, despite the start of the high demand season.

- The tanker market experienced declining rates on all routes in August. High tonnage availability due to the drop in floating storage contributed to the decline in freight rates. VLCC spot freight rates fell 8.6%, Suezmax dropped 4.9% and Aframax declined 8.1% m-o-m. Product market spot freight experienced mixed patterns with East of Suez spot rates increasing 23% while West of Suez rates declined 26%.

- US commercial stocks continued to rise, increasing by 18.4 mb in August, widening the surplus with the five-year average to nearly 123 mb. The bulk of this build came from products, which increased by 14.7 mb, while crude stocks rose 3.7 mb. The latest monthly data for Japan shows commercial oil stocks increased 2.5 mb in July, but remained 8 mb below the five-year average. Preliminary indications shows Japanese total commercial oil stocks fell by around 5 mb at the end of August.

- Demand for OPEC crude in 2010 has been revised down by 0.1 mb/d from the previous report to stand at 28.6 mb/d, representing a decline of 0.3 mb/d compared to last year. Demand for OPEC crude in 2011 has also been revised down by 0.1 mb/d to average 28.8 mb/d, representing an increase of 0.2 mb/d over the previous year.

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