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Oil Market Highlights – Nov 10

Source: OPEC_RP101101 11/11/2010, Location: Europe

- The OPEC Reference Basket moved within a higher but narrow range of $78.50-81.50/b in October. This resulted in a monthly average of nearly $80/b, the second highest so far this year after April’s $82.33/b. The rise in the OPEC Reference Basket was driven by bullish sentiment in the futures market, mainly attributable to the weaker US dollar following the second round of quantitative easing. The Basket continued moving higher in November to stand at $85.27/b on 10 November.

- The Nymex WTI front-month rose $6.43 to stand slightly below $82/b in October before going on to hit a two-year high in the first week of November. Similarly, ICE Brent gained a further $5.12 to average $83.54/b and then moved beyond $88/b in November.

- Growth in the world economy was revised up to 4.1% for 2010, supported by a better-thanexpected expansion in the manufacturing sector of the OECD. Growth for 2011 remains unchanged at 3.6% as it is still unclear if the current momentum can be carried over into the coming year. A relative resilient US economy is now forecast to grow at 2.7% in 2010 and 2.4% in 2011. The forecast for Japan was revised up slightly to 2.9% for 2010 and left unchanged at 1.3% for 2011. Germany’s manufacturing base has been driving the expansion in the Euro-zone to 1.4% in 2010 and 1.1% in 2011. Growth expectations for China remain at 9.5% in 2010 and 8.6% in 2011, while India’s forecast was revised up to 8.5% in 2010 and remains unchanged at 7.7% in 2011.

- World oil demand growth in 2010 has been revised up by 190 tb/d to now stand at 1.3 mb/d. Oil demand has been picking up in the third quarter. Consumption in the OECD has outpaced expectations as a result of the stronger-than-expected economic activities, supported by various stimulus plans. The forecast for world oil demand growth in 2011 has been revised up by around 120 tb/d to now stand at 1.2 mb/d. The improved outlook for OECD demand is a key factor behind this adjustment. However, given the higher baseline, oil demand growth is expected to be lower than in the current year.

- Non-OPEC supply growth in 2010 is projected to increase by 1.0 mb/d, a minor upward revision from the previous report, supported by growth in the US, China, Brazil, Russia, Canada, and Colombia. In 2011, non-OPEC supply is forecast to grow by 360 tb/d, in line with the previous assessment. Brazil, Canada, Ghana, Colombia, Kazakhstan, and Azerbaijan are expected to be the main contributors to next year’s growth, while Norway, UK, and Mexico are anticipated to experience the largest declines. OPEC NGLs and non-conventional oils are estimated to average 5.2 mb/d in 2011, indicating growth of 450 tb/d over the current year. In October, OPEC crude production averaged 29.30 mb/d, an increase of 144 tb/d over the previous month.

- Strong distillate demand across the globe amid open arbitrage to Europe following the French strike has slightly lifted sentiment in the product markets. However, weak fuel oil demand has diminished the impact in some areas. Once the tight supply situation in Europe ends, the gasoline market is expected to move back over to the bearish side, given low seasonal demand, and the oversupply of fuel oil is likely to keep refinery margins depressed over the coming months.

- The tanker market experienced mixed patterns in October. High tonnage availability combined with the seasonal drop in oil demand in some markets contrasted with active markets for other routes. VLCC spot freight rates declined 2.9%, while Suezmax jumped 24.8% and Aframax rose 11.6% m-o-m in October. Clean market freight rates also experienced a negative performance in October amid mixed patterns. East of Suez rates slumped 14.4%, while West of Suez rates rose 4.4%.

- US commercial stocks declined 11.6 mb in October, despite a 7.2 mb build in crude as products dropped by a substantial 18.8 mb. Despite the draw, US stocks remained at a comfortable surplus of 107 mb over the five-year average. EU 15 plus Norway total inventories rose 8.5 mb driven by a build of 10.7 mb in crude, while products fell 2.2 mb. European stocks stood 6.3 mb above the fiveyear average. The most recent data for September shows commercial stocks in Japan fell by 10.6 mb. However, preliminary indications for October show a rebound of 7.9 mb.

- The demand for OPEC crude in 2010 is estimated at 28.8 mb/d, following an upward adjustment of 0.3 mb/d from the previous report. This represents a decline of 0.2 mb/d compared to a year ago. In 2011, the demand from OPEC crude is expected to average 29.2 mb/d, about 0.4 mb/d higher than in the previous year, following an upward adjustment of 0.4 mb/d from the previous assessment.

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