GATHERING MOMENTUM
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.