GATH­ER­ING MO­MEN­TUM

Oil and Gas - - MARKET WATCH -

In the Mid­dle East, oil de­mand growth is an­tic­i­pated to gain fur­ther strength in 2019 com­pared with the cur­rent year, with cur­rent es­ti­ma­tions hov­er­ing around 90 tb/d of fore­cast oil de­mand growth, amid a strong re­bound in eco­nomic ac­tiv­i­ties, ac­cord­ing to OPEC Monthly Oil Mar­ket Re­port-July 2018 WORLD OIL SUP­PLY

Pre­lim­i­nary data in­di­cates that global oil sup­ply in­creased by 0.60 mb/d to aver­age 98.01 mb/d in June 2018, com­pared with the pre­vi­ous month.

The in­crease of non-OPEC sup­ply (in­clud­ing OPEC NGLs) by 0.43 mb/d mainly driven by OECD as well as OPEC crude oil pro­duc­tion by 0.17 mb/d in June led to an in­crease in global oil out­put.

The share of OPEC crude oil in to­tal global pro­duc­tion un­changed at 33.0% in June com­pared with the pre­vi­ous month. Es­ti­mates are based on pre­lim­i­nary data from di­rect com­mu­ni­ca­tion for non-OPEC sup­ply, OPEC NGL and non-con­ven­tional oil, while es­ti­mates for OPEC crude pro­duc­tion are based on se­condary sources.

THE OIL FU­TURES MAR­KET

Crude oil fu­tures de­clined in June, with ICE Brent crude oil fu­tures end­ing the month lower, but re­main­ing above $75/b. NYMEX WTI fu­tures also weak­ened, but to a higher ex­tent, due to high US oil sup­plies.

Oil prices mostly fell on ex­pec­ta­tions that OPEC and Rus­sia will grad­u­ally in­crease out­put. This is also re­flected in the Min­is­te­rial de­ci­sions of the OPEC and par­tic­i­pat­ing non-OPEC coun­tries late last month.

More­over, as the oil mar­kets move sus­tain­ably to­ward bal­anc­ing with

OPEC and par­tic­i­pat­ing non-OPEC coun­tries com­plet­ing a year-and-a-half of the sup­ply ad­just­ment de­ci­sion, oil fu­tures surged dur­ing 1H18, with ICE Brent av­er­ag­ing above $70/b, about 35% higher than in 1H17. Sim­i­larly, NYMEX WTI im­proved 31%, ris­ing above $65/b in 1H18.

ICE Brent av­er­aged $1.07/b, or 1.4%, lower in June, at $75.94/b, while NYMEX WTI lost $2.66/b, or 3.8%, to aver­age $67.32/b. Y-t-d, ICE Brent is $18.48, or 35.1%, higher at $71.16/b, while NYMEX WTI rose by $15.51, or 31.1%, to $65.46/b. In line with the weak­en­ing in crude oil fu­tures, DME Oman also dropped by 97¢, or 1.3%, over the month to aver­age at $73.63/b in June. For 1H18, DME Oman was up $16.96/b, or 33.0%, at $68.40/b.

Crude oil fu­tures prices slipped in the sec­ond week of July. On 10 July, ICE Brent stood at $78.86/b and NYMEX WTI at $74.11/b.

MID­DLE EAST

In 2018, Mid­dle East oil de­mand is an­tic­i­pated to ex­pand by around 50 tb/d. In the Mid­dle East, oil de­mand growth is an­tic­i­pated to gain fur­ther strength in 2019 com­pared with the cur­rent year, with cur­rent es­ti­ma­tions hov­er­ing around 90 tb/d of fore­cast oil de­mand growth, amid a strong re­bound in eco­nomic ac­tiv­i­ties.

SAUDI ARA­BIA

In Saudi Ara­bia, May 2018 oil de­mand growth fig­ures weak­ened for the sec­ond con­sec­u­tive month and for the third month this year. Oil re­quire­ments fell by 23 tb/d, or 1.0%, com­pared with the same month in 2017, to reach 2.51 mb/d.

Within prod­ucts, a mixed per­for­mance was ob­served; the solid growth in fuel oil, jet/kerosene and LPG was out­weighed by slower-than-ex­pected growth in crude for di­rect burn­ing, diesel oil and gaso­line.

On a cu­mu­la­tive ba­sis, with data from Jan­uary to May, oil de­mand growth in the King­dom is neg­a­tive, as re­duc­tions in diesel oil and gaso­line de­mand weighed on over­all prod­uct per­for­mance. Data in­di­cates a de­cline of around 0.1 mb/d, or 4.2% y-o-y, com­pared with the same pe­riod in 2017.

In May 2018, fuel oil was sup­ported by an in­crease in air con­di­tion­ing us­age dur­ing the sum­mer sea­son, en­cour­ag­ing con­sump­tion for power gen­er­a­tion. Mean­while, crude oil for di­rect burn­ing de­creased sharply dur­ing May 2018, drop­ping by around 0.2 mb/d y-o-y de­spite higher air con­di­tion­ing us­age, which was met by in­creased fuel oil con­sump­tion.

In­creased air traf­fic due to the start of the Holy Month of Ra­madan and the on­set of sum­mer hol­i­days con­trib­uted to a rise in jet/kerosene de­mand, which added 22 tb/d y-o-y in May. Diesel oil re­quire­ments de­clined, drop­ping by 0.12 mb/d y-o-y amid slower mo­men­tum in the con­struc­tion sec­tor and less-than ex­pected trad­ing ac­tiv­ity, re­duc­ing truck trans­porta­tion. Gaso­line con­sump­tion ap­peared to be im­pacted sharply by the re­duc­tion of sub­si­dies im­ple­mented at the be­gin­ning of the year, re­sult­ing in a de­cline in de­mand of 68 tb/d y-o-y.

Saudi Ara­bia is pro­jected to be the main con­trib­u­tor to growth in the re­gion in 2019 de­spite a lack­lus­ter growth out­look for the cur­rent year. Trans­porta­tion fu­els − gaso­line and au­to­mo­tive diesel − in ad­di­tion to petro­chem­i­cal feed­stocks and con­struc­tion fu­els are an­tic­i­pated to be the prod­ucts lead­ing oil de­mand

growth. On the other hand, fuel oil and di­rect crude for power gen­er­a­tion are an­tic­i­pated to face strong com­pe­ti­tion from sub­sti­tu­tion with nat­u­ral gas.

OTHER COUN­TRIES IN THE MID­DLE EAST

Iraq’s to­tal prod­uct de­mand de­clined by around 18 tb/d y-o-y in May, fol­low­ing two months of in­creases.

De­spite firm gains across the bar­rel, the steep de­clines in the “other prod­uct” cat­e­gory, drop­ping by around 0.15 mb/d, out­weighed most of the gains recorded.

Oil de­mand also de­clined in IR Iran dur­ing the month of April 2018 for the fourth con­sec­u­tive month in 2018 pri­mar­ily as a re­sult of dis­place­ment of fuel oil in power gen­er­a­tion.

Oil de­mand in­creased in the UAE in April 2018, in line with healthy gaso­line re­quire­ments. Mean­while, in Qatar, oil de­mand was flat y-o-y dur­ing the month of May 2018. Go­ing for­ward, oil de­mand pro­jec­tions for the coun­try are mixed, while the up­ward po­ten­tial re­mains linked to the over­all eco­nomic per­for­mance, healthy oil prices and the per­for­mance of the power and in­dus­trial sec­tors dur­ing the peak

sum­mer de­mand sea­son. On the other hand, down­ward risk is linked to a higher level of sub­sti­tu­tion with nat­u­ral gas and the process of eco­nomic re­forms, which in­cludes a par­tial re­moval of sub­si­dies.

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