- The OPEC Reference Basket plunged by $8.15 or almost 7% in May to average around $110/b. This decline – which was the first since July 2010 and the largest in percentage terms since May 2010 was attributed to bearish market sentiment, which triggered an outflow of investment from the paper oil market. The WTI front-month contract fell below $100/b for the first time since mid - March to average $101.36/b, the lowest since February’s $89.74/b. ICE Brent also declined sharply by $8.67 or 7% to average $114.42/b. This represents the first drop since last July. However, continued unrest in the MENA region maintained a risk premium in prices. So far in June, the OPEC Reference Basket has hovered around $110/b, reaching $113.43/b on 9 June.
- The world economic growth forecast for 2011 remains at 3.9%, but challenges to the forecast have become more pronounced. The US forecast remains unchanged at 2.6%, although developments require close monitoring given the weakening labour market and slower industrial activity. Euro-zone growth also remains broadly unchanged at 1.8%, but continues to be significantly challenged by sovereign debt concerns. Japan experienced a much larger-than-expected decline in the 1Q11 and, as a result, this year’s forecast has been revised to minus 0.5% from minus 0.1% last month. While industrial activity is decelerating in Developing Asia, the region is still expected to contribute the most to global growth in 2011, with China growing by 9.0% and India by 8.1%.
- World oil demand is forecast to grow by 1.4 mb/d in 2011, following growth of 2.1 mb/d in the previous year. Several factors continue to impact oil demand worldwide. The Japanese earthquake continues to impact on oil demand estimates. Additionally, the latest monthly US oil data showed much weaker oil consumption than anticipated. In contrast, China’s economy continued to grow strongly resulting in increased oil usage, offsetting to some degree the weaker growth in the US.
- Non-OPEC oil supply is now projected to increase by 0.7 mb/d in 2011, following a minor upward revision from the last report. Estimated non-OPEC supply growth in 2010 remains unchanged at 1.1 mb/d. OPEC NGLs and nonconventional oils are expected to average 5.3 mb/d in 2011, a gain of 0.4 mb/d over the previous year. In May, estimated OPEC crude oil production averaged 28.97 mb/d, according to secondary sources, an increase of 171 tb/d over the previous month.
- Product markets have been impacted since the middle of May by weaker-than-expected gasoline demand at the start of the driving season and a stock build in US gasoline after several weeks of inventory draws. However, this disappointing situation has been partially offset by gains at the bottom of the barrel in some regions, allowing margins to remain healthy. Looking ahead, demand is expected to improve with the start of the driving season and expected higher gasoil demand for power generation in China. This could encourage an increase in refinery runs across the globe, potentially adding support to the crude market.
- Dirty spot freight rates were mixed in May with VLCC and Aframax rates decreasing, while Suezmax rates increased slightly. Lower demand for vessels and high tonnage availability affected rates in May. Clean spot freight rates decreased by 3.3% over the previous month, mainly due to refinery maintenance. In May, OPEC spot fixtures decreased by 7.4% compared to the previous month.
Sailings from OPEC were marginally higher and arrivals in the US gained 7.9%.
- US commercial inventories rose 20.4 mb in May. The build was divided between products and crude which increased by 13.1 mb and 7.3 mb respectively. With this build, US commercial oil inventories stood at 12.5 mb above the historical average. The most recent data for April shows that commercial oil inventories in Japan rose strongly by 18.2 mb, with crude and products showing an increase of 7.1 mb and 11.0 mb respectively. Japanese oil inventories showed a surplus with the historical trend at 6.5 mb.
- The demand for OPEC crude in 2010 is estimated at 29.6 mb/d, around 0.1 mb/d higher than the previous report. With this adjustment, the demand for OPEC crude stood at about 0.4 mb/d higher than 2009 level. In 2011, the demand from OPEC crude is expected to average 29.9 mb/d, representing an increase of about 0.3 mb/d from the previous year and a slight adjustment over the previous assessment.