Crude prices fail to sus­tain up­swing

Kuwait Times - - BUSINESS -

KUWAIT: Oil prices went spi­ral­ing down dur­ing Oc­to­ber-15 and Novem­ber-15 af­ter a num­ber of re­ports showed a sharp in­crease in oil in­ven­to­ries and a ris­ing in­ven­tory glut in the global oil mar­ket. Oil mar­ket had a strong start in Oc­to­ber-15. Dur­ing the first week Brent touched the psy­cho­log­i­cal im­por­tant mark of $ 50/b and closed at a 10-week high level of $ 52.13/b whereas OPEC oil reached $ 48.79/b dur­ing the same time. As the in­ven­tory data was re­leased, prices started de­clin­ing, and in Novem­ber-15 it recorded the worst weekly de­cline in over eight months for the week end­ing 12-Novem­ber-15, barely hold­ing above the $ 40/b level. Both Brent and WTI fell 8 per­cent dur­ing the week, the high­est weekly de­cline since mid-March-15.

Ac­cord­ing to the US EIA, com­mer­cial crude oil in­ven­to­ries in the US in­creased by 4.2 mil­lion bar­rels dur­ing the week end­ing 12-Novem­ber-15 to reach 487.0 mil­lion bar­rels pri­mar­ily due to higher im­ports. Al­though re­fin­ers in the US un­ex­pect­edly in­creased their out­put by al­most 0.8 per­cent­age points to the high­est point recorded at this time of the year as they came out of main­te­nance shut­downs, this could only have a tem­po­rary im­pact on oil prices. In a re­lated de­vel­op­ment, in­ven­tory data re­leased by the Amer­i­can Petroleum In­sti­tute (API) sur­prised in­vestors as it re­ported 6.3 mil­lion bar­rels in­crease in in­ven­to­ries. Fur­ther­more, rig count data re­leased by Baker Hughes showed that US oil rig count rose for the first time in 11 weeks, al­though marginally, by two to a to­tal of 574 rigs, adding more pres­sure to oil price.

Av­er­age monthly OPEC oil price saw mar­ginal gains dur­ing Oc­to­ber-15 af­ter four con­sec­u­tive months of de­cline. The av­er­age for the month stood at $ 45.02/b as com­pared to $ 44.83/b for Septem­ber-15 record­ing a gain of 0.4 per­cent. How­ever, dur­ing Novem­ber-15 av­er­age OPEC oil price stood at a much lower $ 43.02/b by 11Novem­ber-15 af­ter it reached $ 41.53/b, the low­est point in over two months. Kuwait Blend Spot Price FOB also de­clined for the fifth con­sec­u­tive month and av­er­aged at $ 43.6/b dur­ing Oc­to­ber15, a de­cline of 0.8 per­cent as com­pared to the pre­vi­ous month’s av­er­age. The de­cline con­tin­ued dur­ing Novem­ber-15 as av­er­age month-to-date prices reached $ 41.55/b, a de­cline of 6.9 per­cent as com­pared to the av­er­age in Oc­to­ber-15.

World oil de­mand

To­tal world oil de­mand growth for 2015 was kept un­changed from the last month at 1.5 mb/d to reach 92.86 mb/d as trends con­tinue to point to­wards the same fac­tors of growth. Ac­cord­ing to the lat­est data, oil de­mand in the US grew by ap­prox­i­mately 0.4 mb/d un­til Oc­to­ber-15 pri­mar­ily led by higher de­mand for gaso­line. In terms of oil de­mand in the OECD Amer­i­cas re­gion, Mex­ico recorded solid de­mand growth for the third con­sec­u­tive month in Septem­ber-15 recorded at 0.05 mb/d or 3 per­cent year-on-year. De­mand for gaso­line and jet fuel has seen an in­crease pri­mar­ily due to the im­prov­ing econ­omy as well as due to lower fuel prices. On the other hand, Canada saw a fall in oil de­mand in Au­gust-15 as gains in LPG de­mand was more than off­set by de­cline in de­mand for gaso­line, ga­soil and fuel oil. In OECD Europe, oil de­mand growth in Ger­many, France, UK and Italy was small at 0.03 mb/d in Septem­ber-15 as the de­cline in de­mand in Ger­many was off­set by higher de­mand in Italy and UK. Nev­er­the­less, Euro­pean auto sales re­mained upbeat in Septem­ber-15 with an in­crease of 10 per­cent year-on-year. Expectations for oil de­mand for the re­main­der of the year have im­proved since last month led by faster eco­nomic growth, low his­tor­i­cal base­line and low fuel price en­vi­ron­ment. In Latin Amer­ica, oil de­mand con­tin­ued to shrink dur­ing Septem­ber-15 with a de­cline of al­most 5 per­cent or 0.13 mb/d. In the Mid­dle East, oil de­mand re­mained par­tic­u­larly strong in Saudi Ara­bia and Iraq. Saudi Ara­bia saw a de­mand growth of nearly 8 per­cent or 0.21 mb/d driven by trans­porta­tion fu­els as travel ac­tiv­ity in­creased dur­ing the sum­mer va­ca­tion that co­in­cided with the Hajj sea­son. On the other hand, Iraq ben­e­fited from the low base­line ef­fect. In Asia, oil consumption in China re­mained upbeat with a growth of 0.49 mb/d mostly on the back of higher diesel consumption. Oil de­mand growth in 2016 was also kept un­changed from the last month and is ex­pected to reach 1.25 mb/d to av­er­age around 94.14 mb/d. The growth would be pri­mar­ily on the back of higher de­mand in non-OECD coun­tries (ex­pected to be at 1.1 mb/d) whereas OECD coun­tries are ex­pected to post a mar­ginal de­mand growth of 0.15 mb/d. OECD Europe and Asia Pa­cific are ex­pected to post a de­cline in oil de­mand in 2016, whereas Mid­dle East, Other Asia and China are ex­pected to show strong growth.

World oil sup­ply

Non-OPEC oil sup­ply growth in 2015 was kept un­changed from the last month is ex­pected to grow at the same rate of 0.72 mb/d to av­er­age at 57.24 mb/d. There were small changes to oil sup­ply pro­jec­tions for the re­main­der of the year for OECD, De­vel­op­ing Coun­tries, China and the FSU. An ex­pected fall in US tight oil pro­duc­tion owing to per­sis­tently low oil prices is ex­pected to be the big­gest fac­tor for the de­cline in sup­ply from the re­gion. How­ever, over­all world oil sup­ply was pos­i­tively im­pacted by higher-than-ex­pected pro­duc­tion from non-OPEC pro­duc­ers out­side of the US dur­ing 2Q-15 and 3Q-15. Oil sup­ply from OECD Amer­i­cas saw a down­ward re­vi­sion of 0.2mb/d and is now es­ti­mated to av­er­age at 20.56 mb/d in 2015. US to­tal crude oil pro­duc­tion de­creased by 45 tb/d to av­er­age 9.32 mb/d in Au­gust-15 led by a de­cline in Texas. Mean­while, oil sup­ply from OECD Europe is ex­pected to ex­pand by 60 tb/d to 3.66 mb/d led by higher sup­ply from UK and Nor­way. Oil sup­ply from the Mid­dle East is ex­pected to de­cline by 0.09 mb/d to av­er­age at 1.25 mb/d in 2015 as in­crease in sup­ply from Oman is ex­pected to be off­set by a de­cline in sup­ply from Bahrain and Ye­men.

Non-OPEC oil sup­ply was also kept un­changed from the last month and is ex­pected to con­tract by 0.13 mb/d as com­pared to 2015 lev­els to av­er­age at 57.11 mb/d. Ac­cord­ing to the OPEC’s monthly re­port, al­most 5 mb/d of projects have been de­ferred or can­celled glob­ally due to the low oil price en­vi­ron­ment in ad­di­tion to capex re­duc­tion at ex­ist­ing fields. The to­tal de­cline in capex cut­backs is pegged at $ 200bn for 2015 and 2016 that would lead to a sup­ply hole in the com­ing years.

OPEC oil pro­duc­tion & spare ca­pac­ity

OPEC oil pro­duc­tion in­creased dur­ing Oc­to­ber-15 by 74 tb/d or 0.2 per­cent to 32.21 mb/d af­ter a de­cline dur­ing the pre­vi­ous month. The in­crease in pro­duc­tion was pri­mar­ily on the back of higher pro­duc­tion in Libya and Saudi Ara­bia that in­creased pro­duc­tion by 80 tb/d each fol­lowed by 53 tb/d in­crease in pro­duc­tion in Iraq. This in­crease was par­tially off­set by de­cline in pro- duc­tion in Kuwait by 120 tb/d and in Iran by 100 tb/d. In its monthly re­port, the In­ter­na­tional En­ergy Agency (IEA) said that OPEC’s oil pro­duc­tion is al­most 1.1 mb/d higher than a year ago led by Saudi Ara­bia that pumped oil at more than 10 mb/d for the eight con­sec­u­tive month. More­over, an ex­pected fall in non-OPEC oil sup­ply growth as pro­duc­ers can­not sus­tain pro­duc­tion at such low oil price has pro­vided a pos­i­tive push to de­mand forecast for OPEC’s crude in 2016. The IEA said that in­stead of cut­ting pro­duc­tion, the OPEC could in­crease to­tal pro­duc­tion by the group to ac­com­mo­date In­done­sia that has ap­plied to re­join the group.

Mean­while, in its monthly re­port, OPEC said that sur­plus oil in­ven­to­ries are at the high­est level in at least a decade owing to in­creased global oil pro­duc­tion. OPEC said that in­ven­tory in de­vel­oped economies are 210 mil­lion bar­rels higher than their fiveyear av­er­age, much more than the glut that ac­cu­mu­lated in early 2009 af­ter the fi­nan­cial cri­sis. How­ever, a slow­down in non-OPEC sup­ply and ris­ing de­mand for win­ter should take away some of the in­ven­tory build-up and sup­port prices. In a sep­a­rate event, the sec­re­tary gen­eral of OPEC said de­spite Iran com­ing to the oil mar­ket, global de­mand for crude would bring more bal­ance to the oil mar­ket as early as next year. Sup­port­ing this view, the vice chair­man of IHS said that oil mar­ket will re­bal­ance in 2016 or 2017 as de­mand grows be­tween 1.2 mb/d and 1.5 mb/d till 2020. Sim­i­larly, the IEA also be­lieves that the oil mar­ket will re­bal­ance at $ 80/b price level in 2020.

Dur­ing Oc­to­ber-15, OPEC pro­duced at 88.4 per­cent of its ca­pac­ity, an in­crease of 20 bps from the pre­vi­ous month. Saudi Ara­bia con­tin­ued to ac­count for the lion’s share of the to­tal out­put by the group, pegged at 32.2 per­cent fol­lowed by Iraq at 13.3 per­cent and UAE at 9.2 per­cent. Mean­while, the de­cline in monthly pro­duc­tion in Kuwait dur­ing Oc­to­ber-15 (-120 tb/d) came as a re­sult of less num­ber of rigs in op­er­a­tion ie 40 rigs dur­ing Oc­to­ber-15 as com­pared to 43 rigs dur­ing Septem­ber-15.

Newspapers in English

Newspapers from Kuwait

© PressReader. All rights reserved.