Crude prices fail to sustain upswing
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.