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

Oil and Gas - - MARKET WATCH -

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.

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