DRIV­ING GROWTH

Oil and Gas - - MARKET WATCH -

De­vel­op­ments in eco­nomic and in­dus­trial ac­tiv­i­ties in var­i­ous coun­tries of the Mid­dle East re­gion are an­tic­i­pated to sup­port higher oil de­mand growth in 2018, ac­cord­ing to OPEC Monthly Oil Mar­ket Re­port-May 2018

WORLD OIL SUP­PLY

World oil sup­ply in April 2018 in­creased by 0.12 mb/d m-o-m, to av­er­age 97.89 mb/d, rep­re­sent­ing an in­crease of 2.30 mb/d y-o-y. Pre­lim­i­nary non-OPEC oil sup­ply, in­clud­ing OPEC NGLs, was up by 0.11 mb/d m-o-m and rose by 2.35 mb/d y-o-y to av­er­age 65.96 mb/d.

Non-OPEC sup­ply for 2017 was re­vised down slightly by 0.01 mb/d to av­er­age 57.89 mb/d, re­sult­ing in y-o-y growth of 0.87 mb/d. The down­ward re­vi­sion was mainly due to down­ward ad­just­ments for Brazil and, to a lesser ex­tent, for other coun­tries, which mostly off­set by a re­view of his­tor­i­cal non-con­ven­tional pro­duc­tion data, lead­ing to a higher as­sess­ment, no­tably for OECD Europe. Fol­low­ing this re­vi­sion in 2017, up­ward re­vi­sions in 1Q18 for the US, Ar­gentina, Colom­bia and China, were par­tially off­set by down­ward ad­just­ments for Canada, Mex­ico, Nor­way, the UK and Brazil, and the fore­cast for 2Q18 also saw an up­ward ad­just­ment.

There­fore, non-OPEC sup­ply fore­cast for 2018 was re­vised up by 0.01 mb/d, to av­er­age 59.62 mb/d, rep­re­sent­ing y-o-y growth of 1.72 mb/d, com­pared to the pre­vi­ous month’s as­sess­ment. OPEC NGLs and non-con­ven­tional liq­uids out­put av­er­aged 6.59 mb/d in April 2018, up by 0.02 mb/d y-o-y. On a yearly ba­sis, OPEC NGLs are es­ti­mated to have grown by 0.17 mb/d y-o-y to av­er­age 6.31 mb/d in 2017. For 2018, yearly growth of 0.18 mb/d is an­tic­i­pated for an av­er­age of 6.49 mb/d. Ac­cord­ing to sec­ondary sources, OPEC crude oil pro­duc­tion in April 2018 in­creased by 12 tb/d to av­er­age 31.93 mb/d.

THE OIL FU­TURES MAR­KET

ICE Brent crude oil fu­tures ended the month sig­nif­i­cantly higher, above $70/b, which has not been seen since late 2014. NYMEX WTI fu­tures also rose sharply, but at a lower rate due to ris­ing US oil sup­plies, both in terms of pro­duc­tion and in­ven­to­ries, as well as a strength­en­ing US dol­lar. The oil mar­ket was un­der­pinned over the month by re­newed geopo­lit­i­cal is­sues, tight­en­ing prod­uct in­ven­to­ries and ro­bust global de­mand. This all damp­ened the ef­fects of a stronger dol­lar and ris­ing US pro­duc­tion. Strong con­form­ity from OPEC and par­tic­i­pat­ing non-OPEC na­tions in terms of pro­duc­tion ad­just­ments un­der the ‘Dec­la­ra­tion of Co­op­er­a­tion’ con­tinue to sup­port the oil mar­ket, too.

In April, ICE Brent was on av­er­age $5.04, or 7.6%, higher at $71.76/b, while NYMEX WTI gained $3.55, or 5.7%, to av­er­age $66.33/b. Y-t-d, ICE Brent is $13.96, or 25.7%, higher at $68.36/b, while NYMEX WTI is $12.15, or

23.5%, higher at $63.73/b. In line with im­prove­ments in crude oil fu­tures, DME Oman also rose a sharp $4.94, or 7.8%, over the month to set­tle at an av­er­age $68.49/b in April. Y-t-d, DME Oman was up $12.27, or 23.1%, at $65.40/b.

On May 11, ICE Brent stood at $77.12/b and NYMEX WTI at $70.70/b.

De­spite the surge in crude oil fu­tures prices, spec­u­la­tive net long po­si­tions

ended the month lower, al­beit only slightly in ICE Brent fu­tures and op­tions po­si­tions. Data from the US Com­mod­ity Fu­tures Trad­ing Com­mis­sion (CFTC) showed spec­u­la­tors cut com­bined fu­tures and op­tions net long po­si­tions in NYMEX WTI by 34,897 con­tracts, or 7.5%, from the end of March to 433,118 lots on 24 April.

In the ICE Brent, how­ever, hedge funds and money man­agers slightly re­duced their com­bined fu­tures and op­tions net long po­si­tions from the high­est-ever recorded 615,660 con­tracts to 612,486 lots, ac­cord­ing to the In­ter­con­ti­nen­tal Ex­change. The drop was only 3,174 con­tracts, so the over­all level re­mains el­e­vated. The long-to-short ra­tio in ICE Brent spec­u­la­tive po­si­tions in­creased fur­ther from 15.5:1 to a record-break­ing 19.9:1. In NYMEX WTI, the ra­tio de­creased to 13.2:1 from 16.3:1.

The to­tal fu­tures and op­tions open in­ter­est vol­ume in the two ex­changes was 535,701 lots, or 8.3%, higher at 7 mil­lion con­tracts. The daily av­er­age traded vol­ume for NYMEX WTI con­tracts in­creased by 141,654 lots, or 11.9%, to 1,332,199 con­tracts, while that for ICE Brent rose by 50,040 con­tracts, or 5.3%, to 996,134 lots.

The daily ag­gre­gate traded vol­ume for both crude oil fu­tures mar­kets in­creased by 191,694 con­tracts to 2.3 mil­lion fu­tures con­tracts, or about 2.3 bil­lion b/d of crude oil.

The to­tal traded vol­ume in NYMEX WTI was 10.6% higher at 28 mil­lion con­tracts, while for ICE Brent it was 5.0% higher at 20.9 mil­lion con­tracts.

MID­DLE EAST SAUDI ARA­BIA

In Saudi Ara­bia, March 2018 oil de­mand growth re­mained pos­i­tive for the third con­sec­u­tive month, with data in­di­cat­ing a 3% y-o-y in­crease. The main fac­tor be­hind the in­creas­ing oil re­quire­ments is the ex­pan­sion in crude di­rect use. Crude oil for power gen­er­a­tion was higher on a y-o-y ba­sis by 45 tb/d, while fuel oil de­mand also in­creased by 22 tb/d y-o-y, de­spite sea­son­ally lower re­quire­ments for air con­di­tion­ing. Diesel oil re­quire­ments shed some 55 tb/d or 10% y-o-y. This re­duc­tion is pri­mar­ily on the back of lower con­struc­tion ac­tiv­i­ties in the coun­try. Trans­porta­tion fu­els, with the ex­cep­tion of jet/kerosene, wit­nessed a de­cline. Gaso­line dropped by around 35 tb/d, or 6% y-o-y, as a re­duc­tion in sub­si­dies and a gen­eral slow­down in con­sumer spend­ing im­pacted con­sump­tion. The con­sump­tion of LPG dropped by 5 tb/d on the back of less de­mand in the petro­chem­i­cal sec­tor.

IRAQ

Slug­gish oil de­mand in the first three months of 2018 has been ob­served in Iraq. This is mainly the re­sult of a de­cline in crude di­rect use. The over­all de­cline, how­ever, has been partly off­set by ris­ing re­quire­ments in all main petroleum prod­uct cat­e­gories, with the ex­cep­tion of naph­tha and jet/kerosene. De­mand was par­tic­u­larly strong for gaso­line, gas diesel oil, resid­ual fuel oil and LPG.

OTHER COUN­TRIES IN THE MID­DLE EAST

Dur­ing the 1Q18, oil de­mand was in the pos­i­tive in Iran, with gaso­line ac­count­ing for the bulk of ad­di­tional vol­umes, while y-o-y de­clines were seen in other coun­tries of the re­gion, such as Kuwait and Qatar. Go­ing for­ward, oil de­mand growth in the Mid­dle East is ex­pected to en­counter num­ber of down­side chal­lenges. For ex­am­ple, sub­sti­tu­tion with nat­u­ral gas, as well as par­tial sub­sidy re­movals in sev­eral coun­tries and gov­ern­ment pro­grammes aimed at low­er­ing oil use in the road trans­porta­tion sec­tor.

On the other hand, de­vel­op­ments in eco­nomic and in­dus­trial ac­tiv­i­ties in var­i­ous coun­tries of the re­gion are an­tic­i­pated to sup­port higher oil de­mand growth in 2018. For 2017, Mid­dle East oil de­mand grew by 0.08 mb/d y-o-y, with oil de­mand in 2018 pro­jected to in­crease at the same level.

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