GAINING TRACTION

For 2019, global oil demand is foreseen increasing by around 1.24 mb/d to average 100.00 mb/d, reaching the 100 mb/d threshold for the first time on an annual basis. Oil futures prices recovered in January from their low levels in December last year, ending the month substantially higher compared with the previous month, up by around 5%. Investors gained confidence amid improving oil market fundamentals and signs high conformity levels were contributing to a more balanced market, according to OPEC Monthly Oil Market Report-February 2019

WORLD OIL SUPPLY

Non-OPEC oil supply growth in 2018 was revised up by 0.11 mb/d from the previous month’s report, mainly due to adjustments for US, Canada, Malaysia, China and UK supply, and is now estimated at 2.72 mb/d, with total supply averaging 62.17 mb/d for the year. Key growth drivers in 2018 were the US with 2.24 mb/d, along with Canada, Russia, Kazakhstan, Qatar, Ghana and the UK, while Mexico, Norway and Vietnam showed the largest declines. The nonOPEC oil supply growth forecast for 2019 was also revised up by 0.08 mb/d

to 2.18 mb/d, mainly due to a revised production forecast for the US Gulf of Mexico. Total non-OPEC supply for the year is projected to average 64.34 mb/d. The US, Brazil, Russia, the UK, Australia, Kazakhstan and Ghana are expected to be the main drivers, while Mexico, Canada, Norway, Indonesia and Vietnam are projected to see the largest declines. OPEC NGLs and nonconventional liquids are estimated to have grown by 0.04 mb/d in 2018 to average 4.98 mb/d, and forecast to grow by 0.09 mb/d in 2019 to average 5.07 mb/d. In January 2019, OPEC crude oil production decreased by 797 tb/d to average 30.81 mb/d, according to secondary sources.

CRUDE OIL PRICE MOVEMENTS

The OPEC Reference Basket (ORB) rebounded in January, gaining more than 3%, or $1.80 month-on-month (m-o-m), to average $58.74/b. Crude oil prices improved over the month, buoyed by robust market fundamentals with signs of tightening crude supply as well as firm crude oil demand, particularly from Asia-Pacific. In January, ICE Brent was on average higher by $2.57, or 4.4%, m-o-m at $60.24/b, while NYMEX

WTI rose m-o-m by $2.57, or 5.2%, to average $51.55/b. The Brent contango structure flattened as the market moved toward balance, while the WTI structure remained in significant contango, reflecting US market fundamentals. The DME Oman forward curve remained in backwardation.

THE OIL FUTURES MARKET

Oil futures prices recovered in January from their low levels in December last year, ending the month substantially higher compared with the previous month, up by around 5%. Investors gained confidence amid improving oil market fundamentals and signs high conformity levels were contributing to a more balanced market.

Both futures contracts continued to be supported by mounting geopolitical risks, which raised additional concerns over potential oil supply disruptions, as well as by growing optimism over US-China trade talks and easing trade tensions. Nonetheless, oil prices were capped by persistent concerns about global economic and oil demand growth, particularly after the International Monetary Fund (IMF) forecast lower global economic growth for 2019 and China showed slower economic growth in 2018.

In January, ICE Brent was on average $2.57, or 4.4%, higher m-o-m at $60.24/b, while NYMEX WTI rose by $2.57 or 5.2% m-o-m to average $51.55/b. In an annual average comparison, ICE Brent was $8.84, or 12.8%, lower at $60.24/b, while NYMEX WTI decreased by $12.11, or 19.0%, to $51.55/b. DME Oman crude oil futures also rose m-o-m in January by $2.66, or 4.7% over the previous month, to settle at $59.64/b. For the yearly average, DME Oman was down by $6.76, or 10.2%, at $59.64/b. On February 11, ICE Brent stood at $61.51/b and NYMEX WTI at $52.41/b.

Hedge fund and other money managers returned to the market in January, after three consecutive months of decline following heavy losses seen at the end of last year. Money managers exhibited cautious optimism due to a more balanced global oil market and amid geopolitical tensions that could disrupt crude supply.

Greater optimism regarding the global economic outlook and rising expectations of a trade deal between the US and China, as well as a recovery in oil prices, has spurred investors to increase their long positions.

Nonetheless, uncertainty about global oil demand growth this year remained high.

MIDDLE EAST SAUDI ARABIA

In Saudi Arabia, oil demand figures continued to decline for the 9th consecutive month during December.

Oil requirements decreased by around 0.26 mb/d or by more than 11% compared with the same month in 2017.

All products declined at different rates, with the exception of crude oil for the purpose of burning in the power generation sector and in the Other Products category. The largest decline

originated in transportation fuels as well as industrial fuels, with jet/kerosene and gasoline declining by 46% and 19% y-o-y, respectively. Additionally, diesel in the industrial sector, as well as fuel oil utilised mainly for direct burning for power generators, also declined, shedding around 12% each y-o-y. In cumulative terms, oil demand in Saudi Arabia declined sharply in 2018, despite some positive momentum in naphtha and jet/kerosene demand.

Generally, 2018 oil demand declined by approximately 0.17 mb/d or more than 7.0% y-o-y. Substitution in the power generation sector led to a decline in demand for crude for direct burning.

Additionally, slower construction activity and overall economic reforms, particularly in subsidy reductions for transportations fuels, led to steep declines of 12% and 6%, respectively, for diesel fuel and gasoline in 2018.

IRAQ

In Iraq, December 2018 oil demand data showed an increase of around 0.10 mb/d, with total product consumption now pegged at 0.74 mb/d. Demand for gasoline, diesel, crude oil for power generation and fuel oil increased over the course of the month, with declines in jet/ kerosene consumption partially offsetting some of the gains. In cumulative terms, oil demand registered growth of around 0.06 mb/d y-o-y in 2018, with fuel oil and diesel taking the lion’s share of the growth.

Going forward, Middle East oil demand is subject to the performance of various economies in the region with the impact of oil prices on government spending plans to be closely monitored. Moreover, the influence of subsidy reduction on consumer behaviour and the substitution of oil products by natural gas and other commodities are also important factors to track.

For 2018, Middle East oil demand declined by 0.07 mb/d y-o-y, while oil demand in 2019 is projected to grow by around 0.04 mb/d.