POS­I­TIVE IN­DI­CA­TORS

Im­prove­ment in the oil price en­vi­ron­ment should trans­late into pos­i­tive over­all eco­nomic ac­tiv­i­ties, thereby lend­ing some sup­port to oil de­mand in 2018, ac­cord­ing to OPEC Monthly Oil Mar­ket Re­port-June 2018

Oil and Gas - - MARKET WATCH -

WORLD OIL SUP­PLY

World oil sup­ply in May 2018 in­creased by 0.27 mb/d m-o-m, to av­er­age 97.86 mb/d, rep­re­sent­ing an in­crease of 1.74 mb/d y-o-y. Pre­lim­i­nary non-OPEC oil sup­ply in May, in­clud­ing OPEC NGLs, was up by 0.23 mb/d m-o-m and rose by 2.09 mb/d y-o-y to av­er­age 65.99 mb/d.

For 2017, non-OPEC sup­ply was re­vised up slightly by 0.01 mb/d from last month’s as­sess­ment due to round­ing, rep­re­sent­ing growth of 0.88 mb/d y-o-y. 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. This came on the back of up­ward re­vi­sions of 80 tb/d in 1Q18 his­tor­i­cal pro­duc­tion data in the OECD, par­tic­u­larly in the US and Canada, and up­ward ad­just­ments in 2Q18 in the OECD (+79 tb/d), FSU (+215 tb/d) and China (+81 tb/d) due to higher-than-ex­pected out­put, mostly in April and also in May by 234 tb/d. Nev­er­the­less, to­tal up­ward re­vi­sions for the month were off­set by down­ward re­vi­sions in 1Q18 as well as 2Q18 by -44 tb/d and -136 tb/d, re­spec­tively.

OPEC NGLs and non-con­ven­tional liq­uids’ pro­duc­tion av­er­aged 6.34 mb/d in May, re­main­ing un­changed m-o-m. OPEC NGLs in 2017, based on OPEC Mem­ber Coun­tries’ pro­duc­tion data given through di­rect com­mu­ni­ca­tion, were re­vised down by 0.07 mb/d and now are es­ti­mated to grow by 0.09 mb/d to av­er­age

6.23 mb/d; for 2018, pro­duc­tion is fore­cast to grow by 0.12 mb/d to av­er­age 6.35 mb/d, which in­di­cates a down­ward re­vi­sion of 0.06 mb/d. Ac­cord­ing to se­condary sources, OPEC crude oil pro­duc­tion in­creased by 35 tb/d to av­er­age 31.87 mb/d in May 2018.

THE OIL FU­TURES MAR­KET

Crude oil fu­tures swelled to their high­est value since late 2014, with ICE Brent end­ing the month sig­nif­i­cantly higher above the $75/b level. NYMEX WTI also in­creased sharply, al­beit at a slower pace than Brent, due to higher US oil pro­duc­tion and in­ven­to­ries, as well as a strength­en­ing US dol­lar (USD). The oil

mar­ket was again un­der­pinned over the month by fears of po­ten­tial dis­rup­tion to oil flows due to es­ca­lat­ing geopo­lit­i­cal ten­sions, con­cerns about Venezuela’s crude pro­duc­tion slip­ping fur­ther and with bullish draw­downs in US crude in­ven­to­ries.

Crude oil fu­tures surged to their high­est val­ues in al­most four years early in the month, amid geopo­lit­i­cal ten­sions. Strong con­form­ity from OPEC and par­tic­i­pat­ing non-OPEC pro­duc­ing coun­tries in terms of the pro­duc­tion ad­just­ments through the ‘Dec­la­ra­tion of Co­op­er­a­tion’ also con­tin­ued to sup­port the oil mar­ket. By the end of the month, crude oil fu­tures drifted lower, on ex­pec­ta­tions of some sup­ply vol­umes re­turn­ing to the mar­ket, as well as a sur­pris­ingly bear­ish read on weekly US oil stock num­bers.

ICE Brent was $5.24, or 7.3%, higher to

av­er­age $77.01/b in May. NYMEX WTI also gained $3.66, or 5.5%, to av­er­age $69.98/b. Y-t-d, ICE Brent was $16.47, or 30.6%, higher at $70.22/b, while NYMEX WTI rose by $14.12, or 27.7%, to $65.09/b, com­pared with the same pe­riod in 2017.

In line with the im­prove­ments in crude oil fu­tures, DME Oman also rose by a sharp $6.12, or 8.9%, to set­tle at $74.60/b in May. Y-t-d, DME Oman was up $14.81, or 28.2%, to stand at $67.35/b, com­pared with the same pe­riod in 2017.

In June, crude oil fu­tures prices slipped in the sec­ond week. On 11 June, ICE Brent stood at $76.46/b and NYMEX WTI at $66.10/b.

MID­DLE EAST SAUDI ARA­BIA

In Saudi Ara­bia, the first four months of 2018 saw a more than 5% y-o-y de­cline in oil re­quire­ments. April was ex­tremely slug­gish, with the high­est drop ever recorded. Oil re­quire­ments weak­ened by as much as 0.42 mb/d, which trans­lates to more than 17%, y-o-y.

All prod­uct cat­e­gories have shown a de­cline. Most of the weak­ness oc­curred in the heavy part of the bar­rel in­clud­ing the ‘other prod­ucts’ cat­e­gory. Diesel oil con­tin­ued its down­ward trend which started in 1Q16 as gov­ern­ment in­fra­struc­ture projects showed signs of slow­ing down. Ce­ment de­liv­er­ies dropped by more than 9% y-o-y, an in­di­ca­tion of slower con­struc­tion ac­tiv­i­ties in the coun­try. Diesel oil re­quire­ments dropped by 73 tb/d, or 12%, y-o-y. To­tal diesel oil de­mand is now at 0.58 mb/d, sub­stan­tially lower than the record lev­els in Septem­ber 2015 of around 1 mb/d. For the heavy fu­els, the main fac­tors be­hind the drop in crude for di­rect use as well as fuel oil de­mand growth are the mild weather con­di­tions, in­di­ca­tions of slow re­quire­ments from the power sec­tor due to higher elec­tric­ity tar­iffs and sub­sti­tu­tion pro­grammes from fuel oil and di­rect crude for burn­ing to nat­u­ral gas. Trans­porta­tion fu­els in gen­eral also de­clined with gaso­line and jet/kerosene both drop­ping by around 7% y-o-y each. Re­duc­tion of sub­si­dies, gen­eral slow­down in con­sumer spend­ing and higher in­fla­tion rates are cu­mu­la­tively hav­ing a neg­a­tive in­flu­ence on the prod­ucts’ per­for­mance.

IRAQ

In Iraq, ris­ing oil de­mand in the first four months of 2018 has been ob­served with a mixed per­for­mance among prod­uct cat­e­gories. This trend was sup­ported fur­ther by April oil de­mand growth data which in­di­cates an in­crease of around 95 tb/d, or 15% y-o-y, mark­ing the high­est gains thus far in 2018. Most of the main pe­tro­leum prod­uct cat­e­gories reg­is­tered pos­i­tive growth with the ex­cep­tions of naph­tha, jet/kerosene and the ‘other prod­ucts’ cat­e­gory. Gains were wit­nessed in fuel oil de­mand mainly to sat­isfy the power gen­er­a­tion sec­tor, with to­tal fuel oil con­sump­tion reach­ing 0.28 mb/d.

OTHER COUN­TRIES IN THE MID­DLE EAST

Other coun­tries in the re­gion ex­pe­ri­enced pos­i­tive growth, with the UAE and Kuwait ad­ding around 10 tb/d each, while oil de­mand in IR Iran weak­ened by around 30 tb/d dur­ing the month of April. Mid­dle East oil de­mand growth is fore­seen tilted slightly to the down­side in 2018, mainly as a re­sult of geopo­lit­i­cal con­cerns, sub­sti­tu­tion pro­grammes to­wards other fu­els as well as sub­sidy re­duc­tion poli­cies. On the other hand, the im­prove­ment in the oil price en­vi­ron­ment should trans­late into pos­i­tive over­all eco­nomic ac­tiv­i­ties, thereby lend­ing some sup­port to oil de­mand in 2018. Trans­porta­tion fu­els, mainly gaso­line and diesel oil, are an­tic­i­pated to be the prod­ucts lead­ing oil de­mand growth.

Mid­dle East oil de­mand in­creased by 0.08 mb/d y-o-y in 2017. Oil de­mand in 2018 is pro­jected to in­crease by 0.06 mb/d y-o-y.

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