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

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.