OPEC cautious on oil outlook despite end of global glut

Crude Oil Price Movements
In May, the OPEC Reference Basket (ORB) increased by about 8.5% above the previous month, settling at $74.11/b. Year-to-date in May, the ORB value was 31.7% higher

at $67.48/b, compared to the same period in 2017. In comparison, Dated Brent rose by 7.4%, Dubai by 8.7% and spot WTI by 5.4%, m-o-m. The oil market continues to be underpinned by escalating geopolitical tensions and bullish drawdowns in US crude inventories. However, late in the month, prices slipped on talk of a potential easing of output adjustments. With regard to crude oil futures, ICE Brent was $5.24/b, or 7.3%, higher at $77.01/b, while NYMEX WTI gained $3.66, or 5.5%, to average $69.98/b m-o-m. Y-t-d, ICE Brent is 30.6% higher at $70.22/b, while NYMEX WTI rose 27.7% to $65.09/b, compared to the same period a year earlier. The ICE Brent/NYMEX WTI spread widened by $1.59 to $7.02/b in May, on increasing US supplies. Despite the surge in crude oil futures prices, speculative net long positions ended lower. The Dubai market structure moved deeper into backwardation, while that of Brent eased markedly and WTI remained unchanged. The sweet/sour differentials narrowed in Europe and Asia, while in the US Gulf Coast (USGC), the spread widened.

World Economy
The global GDP growth forecast remains at 3.8% for 2018, following growth of 3.8% in 2017. Expected US growth in 2018 is unchanged from the previous month at 2.7%, after growth of 2.3% in 2017. Growth in Japan was revised down to 1.2% in 2018, following growth of 1.7% in 2017. The Euro-zone’s 2018 growth forecast remains at 2.2%, after growth of 2.5% in 2017. Both India’s and China’s 2018 forecasts are unchanged at 7.3% and 6.5%, following 2017 GDP growth of 6.3% and 6.9%, respectively. Growth in Brazil was revised down to 1.9% in 2018, following growth of 1.0% in 2017. Russia’s GDP growth forecast remained unchanged at 1.8% in 2018, following growth of 1.5% in 2017.

World Oil Demand
World oil demand growth in 2017 remained unchanged at 1.65 mb/d to stand at 97.20 mb/d, unchanged from the previous month’s report. In 2018, projected oil demand growth was also kept unchanged despite some offsetting revisions in both OECD and non-OECD. Global oil demand is now estimated at 1.65 mb/d y-o-y to average 98.85 mb/d. OECD consumption is forecast to grow by 0.40 mb/d in 2018, some 0.02 mb/d higher than in the previous report, following positive revisions in OECD Americas. Meanwhile, oil demand in the non-OECD is now projected to grow by 1.27 mb/d, showing a downward revision of 0.02 mb/d from last month’s assessment. While China’s and Other Asia’s oil demand was revised up, this was more than offset by downward revisions in Latin America and the Middle East.

World Oil Supply
Non-OPEC supply growth in 2017 stands at 0.88 mb/d y-o-y, revised up marginally by 0.01 mb/d from last month’s assessment due to rounding. For 2018, total non-OPEC supply was revised up by 0.13 mb/d, to 59.75 mb/d, representing y-o-y growth of 1.86 mb/d. Upward revisions were made for 1Q18 in the OECD, particularly the US and Canada, and also in the forecast of 2Q18 in the OECD, FSU and China, due to higher-than-expected output. However, these upward revisions were offset by downward revisions the same quarters. OPEC NGLs and non-conventional liquids’ production was revised down by 74 tb/d for 2017 to now show growth of 0.09 mb/d y-o-y and average 6.23 mb/d. For 2018, OPEC NGLs and non-conventional liquids are forecast to grow by 0.12 mb/d and average 6.35 mb/d. In May 2018, OPEC crude oil production increased by 35 tb/d, to average 31.87 mb/d, according to secondary sources.

Product Markets and Refining Operations
Product markets in the Atlantic Basin showed positive performances in May with gains all across the barrel. In the US, improved domestic gasoline demand, along with a relatively tighter middle distillates and fuel oil market, drove refinery margins beyond last year’s record-high figures. In Europe, product markets retained the gains achieved in the previous month with most of the support stemming from the top and bottom of the barrel. Record-high product prices witnessed in May weighed on refinery margins and probably prevented further upside. Meanwhile, product markets in Asia weakened marginally, pressured by slower jet/kerosene demand and rising inventory levels.

Tanker Market
In May, the dirty tanker market showed some positive developments with spot freight rates mostly gaining across number of routes compared with the previous month. On average, dirty tanker freight rates rose by 18% m-o-m while average clean spot freight rates remained flat. The increase in spot rates came on the back of enhanced activities, tightening of the tonnage lists as well as port and weather delays. However, rate gains in both sectors were only relative, as market returns remain low, pressured by high bunker prices.

Stock Movements
Preliminary data for April shows that total OECD commercial oil stocks fell by 6.7 mb m-o-m to stand at 2,811 mb, which is 26 mb below the latest five-year average, but remain 240 mb above January 2014 levels. Crude stocks indicated a slight surplus of 0.4 mb, while product stocks witnessed a deficit of 26 mb below the latest five-year average. In terms of days of forward cover, OECD commercial stocks fell in April to stand at 59.1 days, which is 2.2 days lower than the latest five-year average.

Balance of Supply and Demand In 2017, demand for OPEC crude is estimated to stand at 33.1 mb/d, which is 0.7 mb/d higher than a year earlier. In 2018, demand for OPEC crude is forecast at 32.7 mb/d, a decline of 0.3 mb/d from the previous year’s level.
Source: OPEC