GEARING UP FOR CHALLENGES

For the remainder of 2018 and into 2019, oil demand growth in the Middle East will likely be subject to a number of challenges, which, in general, point more towards the downside, according to OPEC Monthly Oil Market ReportNovember 2018

WORLD OIL SUPPLY

Preliminary data indicates that global oil supply increased by 0.44 mb/d to average 99.76 mb/d in October 2018, compared with the previous month. An increase in non-OPEC supply (including OPEC NGLs) of 0.31 mb/d compared with the previous month, was mainly driven by OECD Americas. Along with a rise in OPEC crude oil production of 0.13 mb/d in October, this equates to a total increase in global oil output of 2.67 mb/d, y-o-y. The share of OPEC crude oil in total global production remained unchanged at 33% in October compared with the previous month.

Estimates are based on preliminary data from direct communication for non-OPEC supply, OPEC NGLs and

non-conventional oil, while estimates for OPEC crude production are based on secondary sources.

THE OIL FUTURES MARKET

Crude oil futures ended slightly higher in October for the second consecutive month. Oil prices peaked in early October, hitting a four-year high, with ICE Brent reaching $86.29/b, as the market focused on oil supply worries. Yet, oil prices witnessed a correction over the second half of October and continued to fall until the end of the month, as sharp sell-offs in global equity markets, growing concerns regarding China-US trade tensions and a weaker emerging economies outlook raised worries on global economic and oil demand growth outlooks. Oil prices fell further after US data showed a continuing build in US crude oil inventories, driven by record-high crude oil production and the refinery maintenance season.

According to US Energy Information Administration (EIA) data, US crude oil inventories continued to grow for six consecutive weeks to October 26, adding more than 22 mb, compared with the week ended 28 September. Higher US

crude oil inventories and the rise of US crude oil production to historical levels slowed the increase of NYMEX WTI futures, compared with ICE Brent and DME Oman.

In October, ICE Brent was on average $1.52, or 1.9% higher m-o-m, at $80.63/b, while NYMEX WTI rose 67¢, or 1.0%, to average $70.76/b. Y-t-d,

ICE Brent is $20.54, or 38.7%, higher at $73.58/b, while NYMEX WTI increased by $17.63, or 35.5%, to $67.23/b, compared to the same period a year earlier.

DME Oman also rose by $1.30 in October, or 1.6%, over the previous month, to settle at $80.05/b. For the year, DME Oman was up by $19.83, or 38.4%, at $71.52/b, compared with the same period in the previous year. On November 12, ICE Brent stood at $70.12/b and NYMEX WTI at $59.93/b.

WORLD OIL DEMAND IN 2018 AND 2019 MIDDLE EAST SAUDI ARABIA

In Saudi Arabia, September oil demand growth remained in negative territory for the sixth consecutive month, with numbers now indicating a sharp 14% y-o-y drop. The main factors behind the bearish oil demand requirements during September were shrinking crude direct use, as a result of efficiency advancements and fuel substitution, as well as continuing economic shift that impacts several oil demand related sectors, particularly transportation.

During September, declines were significant in demand for LPG, diesel, jet/kerosene and crude direct use. Oil demand in Saudi Arabia remained sluggish overall during the first nine months of 2018, with losses averaging a remarkable 0.17 mb/d or -7% y-o-y.

IRAQ

Oil demand in the first nine months of 2018 has risen in Iraq, despite declining crude direct use, which has been partly substituted by natural gas and residual fuel oil. During September, oil demand rose by almost 0.2 mb/d y-o-y. Overall gains were observed in rising requirements for all main petroleum product categories, with the exception of jet/kerosene and crude direct use, where demand growth moved into negative territory. Demand was particularly strong for residual fuel oil, diesel, gasoline and LPG.

IRAN

During the first eight months of 2018, oil demand growth was negative in IR Iran, with a mixed picture among petroleum product categories. Gasoline accounted for the bulk of additional volumes, but this was more than offset by shrinking residual fuel oil and jet/kerosene requirements.

For the remainder of 2018 and into 2019, oil demand growth in the Middle East will likely be subject to a number of challenges, which, in general, point more towards the downside. This includes substitution with natural gas, partial subsidy removals in several countries, as well as government programmes towards efficiencies, particularly related to oil use in the road transportation sector. On the other hand, economic and industrial activity developments in various countries of the region may lend some upward support for future oil demand.

For 2018, Middle East oil demand is forecast to decline by 60 tb/d y-o-y, while oil demand in 2019 is projected to increase by 60 tb/d y-o-y.