Oil Market Highlights - Sep 13

The OPEC Reference Basket averaged $107.52/b in August, representing an increase of $3.07 over the previous month. All Basket component values improved, except Ecuador’s Oriente. Prices were generally supported by tightness in the Brent market. The Basket’s year-to-date value stood at $105.32/b, a decline of $4.81 or 4.8% from the same period last year. In August, international crude oil futures soared on both sides of the Atlantic, as a result of seasonal increases in demand, some supply outages, and geopolitical worries. Money managers capitalized on the combination of higher political risks and supply disruptions to push crude prices higher as net length for ICE Brent crude futures and options reached all-time highs. Nymex WTI rose $1.84 to an average of $106.54/b. ICE Brent jumped $3.02 to an average of $110.45/b.

World economic growth forecasts for 2013 and 2014 remain unchanged at 2.9% and 3.5%, respectively. US growth for 2013 has been revised up to 1.7% from 1.6% due to a stronger-thanexpected 2Q13; the 2014 forecast remains at 2.5%. After a return to growth in 2Q13, the Euro-zone is now expected to see a lower contraction of 0.5% in 2013; the forecast for 2014 remains at 0.6%. Japan’s forecast has been revised to 1.7% from 1.9% and the 2014 forecast is unchanged at 1.4%. India has recently been impacted by capital outflows and its 2013 forecast has been revised from 5.6% to 5.3%, while its 2014 growth remains at 6.0%. China’s forecasts remain unchanged at 7.6% and 7.7% for 2013 and 2014 respectively. Overall, developed economies are recovering – albeit from low levels – amid a slowdown in emerging and developing economies.

World oil demand growth in 2013 was revised up slightly by 25 tb/d, reflecting higher-thanexpected actual data for the first half of the year, as well as positive signs of improvement in major OECD economies, particularly in the US, UK and Germany. The forecast for 2013 currently stands at 0.8 mb/d. In 2014, world oil demand is projected to grow by 1.0 mb/d, in line with the previous forecast, despite some marginal regional revisions to account for the latest information. § Non-OPEC supply is anticipated to increase by 1.1 mb/d in 2013. Growth is supported by expected gains in the US, Canada, South Sudan & Sudan, Russia, China, and Colombia, while output from Syria, Norway, the UK and Australia is projected to decline. In 2014, non-OPEC oil supply is forecast to grow by 1.2 mb/d. OPEC NGLs are expected to average 5.8 mb/d in 2013 and 6.0 mb/d in 2014, representing growth of 0.2 mb/d and 0.1 mb/d, respectively. In August, OPEC crude oil production stood at 30.23 mb/d, representing a decrease of 124 tb/d from the previous month, according to secondary sources.

Product markets exhibited a mixed performance in August. Middle distillates retained some strength on the back of tightening sentiment, fuelled by the upcoming autumn maintenance season. The top and bottom of the barrel weakened worldwide, due to lacklustre demand amid rising supplies and the winding down of the driving season in the Atlantic Basin. This caused refinery margins to fall across the globe.

The tanker market saw mixed movement in August, with VLCC spot freight rates dropping and Suezmax and Aframax spot rates rising from a month earlier. Tanker tonnage availability, low activity and holidays in the Far East and the UK were the main factors behind the decline in VLCC spot freight rates, while Suezmax and Aframax freight rates saw support from port delays and prompt replacements. OPEC spot fixtures were lower in August compared to the previous month, averaging 17.3 mb/d, while OPEC sailings reported a decline of 0.6 mb/d.

Total OECD commercial oil stocks rose by 5.3 mb in July, but indicated a deficit of around 55 mb with the five-year average. Crude stocks were 20 mb below the five-year average and product inventories were down 35 mb. In days of forward cover, OECD commercial stocks stood at 58.5 days, 0.3 days above the five-year average. Preliminary data for August shows that US commercial oil stocks fell slightly by 0.7 mb, reversing the build of last five months, but still indicating a surplus of 30.7 mb with the five-year average. Crude and product stocks saw surpluses of 19.1 mb and 11.5 mb.

Demand for OPEC crude in 2013 is forecast to average 29.9 mb/d, unchanged from the previous report and 0.5 mb/d lower than last year. Demand for OPEC crude in 2014 was revised down slightly to 29.6 mb/d since the last MOMR to show a decline of 0.3 mb/d compared to the current year.