Market Watch

Oil demand is expected to grow marginally in 2019, with the transportation and industrial sectors anticipated to perform better than in 2018 in light of recovering economic activities. In 2019, Middle East oil demand is anticipated to expand by 0.03 mb/d as compared to 2018, according to OPEC Monthly Oil Market Report-July 2019

WORLD OIL SUPPLY

The non-OPEC oil supply growth forecast for 2019 has been revised down by 95 tb/d to reach 2.05 mb/d y-oy, standing at 64.43 mb/d. The downward revisions are mainly due to the extension of the voluntary production adjustments by participating oil producing countries of the Declaration of Cooperation, as well as downward revisions for Brazil and Norway in 2Q19.

In 2020, non-OPEC oil supply is projected to grow by 2.4 mb/d, averaging 66.87 mb/d. The US, Brazil, Norway and Canada are forecast to be the main growth drivers, while Mexico, Colombia, the UK, Indonesia and Thailand are expected to see the largest declines.

OPEC NGL production is expected to grow by 0.07 mb/d in 2019 to average 4.84 mb/d, and is forecast to increase by 0.03 mb/d in 2020 to average

4.87 mb/d. In June, OPEC crude oil production decreased by 68 tb/d to average 29.83 mb/d, according to secondary sources.

CRUDE OIL PRICE MOVEMENTS

The OPEC Reference Basket

(ORB) fell sharply in June by about $7/b, or 10%, m-o-m, recording the second consecutive month of decline as all ORB component values dropped significantly alongside their perspective crude oil benchmarks.

On a monthly basis, the ORB value declined to $62.92/b, its lowest level since January, amid subdued economic data and a weakening global oil demand outlook.

Crude oil futures prices declined significantly in June with both ICE Brent and NYMEX WTI falling about 10% m-o-m, their biggest monthly drop in six months. Oil prices continued the downward trend registered in late May as market sentiment was dominated by concerns about a weakening global economic outlook and slowing oil demand growth amid actual disappointing global economic data and escalating trade disputes.

In June, ICE Brent was $7.27, or 10.3%, m-o-m lower at $63.04/b, while NYMEX WTI fell m-o-m by $6.16, or 10.1%, to average $54.71/b. Year-to-date (Y-t-d), ICE Brent was $4.99, or 7.0%, lower at $66.17/b, while NYMEX WTI decreased by $8.02, or 12.2%, to $57.45/b. DME Oman crude oil futures also declined m-o-m by $8.01 in June, or 11.5%, over the previous month, to settle at $61.85/b. Y-t-d, DME Oman was down by $2.64, or 3.9%, at $65.77/b.

Hedge funds and other money managers continued to close out more bullish positions in June, and net long positions reached their lowest since February in both ICE Brent and NYMEX WTI amid bearish sentiment on the global economic outlook and oil demand growth this year, while most forecasters lowered their oil demand projections for 2019.

Although oil prices continued to decline in June, both the Brent and Dubai price structures remained in steep backwardation. Prompt oil prices were still supported by healthy physical crude oil demand and reduced supply due to planned outages as well as the voluntary supply adjustments from OPEC and participating non-OPEC countries in the Declaration of Cooperation. Heightened geopolitical tensions in the Middle East and concerns about potential supply disruptions also added support to prompt prices. However, the WTI price structure remained in contango, specifically in the front of the curve, mirroring the US oil market oversupply.

Sweet/sour crude differentials widened in both Europe and Asia, while they narrowed slightly in the US Gulf Coast (USGC).

THE OIL FUTURES MARKET

Crude oil futures prices declined significantly in June with both ICE Brent and NYMEX WTI falling about 10% m-o-m, posting their biggest monthly drops in six months. Oil prices continued the downward trend registered in late May as market sentiment was dominated by concerns about weakening global economic and oil demand growth amid disappointing global economic data and escalating trade disputes between the US and China, as well as plans from the US administration to impose new tariffs on imports from Mexico.

Furthermore, most of the forecasting agencies revised down their global oil demand projections for 2019, highlighting uncertainties about trade disputes and their impacts on energy demand. Subdued performances in global equity markets also weighed on oil futures prices. Oil prices, specifically WTI, remained under pressure as US crude oil stocks continued to increase for the fifth time in six weeks, rising to their highest level since July 2017. Additionally, refining margins remained weak. However, oil prices recovered in the second part of June supported by heightened geopolitical tensions in the Middle East, as well as declining US crude oil and product stocks for two consecutive weeks after US crude exports hit a new record high of 3.8 mb/d, according to EIA data. In the week ending June 21, US

crude oil stocks fell by about 13 mb, larger than expected by analysts, as US crude oil exports increased, crude imports declined and US refinery runs rose. Nonetheless, the oil price steadied as the market awaited the outcomes of the US-China meeting on the sidelines of the G-20 summit in late June, as well as the OPEC and Non-OPEC ministerial meetings in early July.

In June, ICE Brent was $7.27, or 10.3%, m-o-m lower at $63.04/b, while NYMEX WTI fell m-o-m by $6.16, or 10.1%, to average $54.71/b. Y-t-d, ICE Brent was $4.99, or 7.0%, lower at $66.17/b, while NYMEX WTI decreased by $8.02, or 12.2%, to $57.45/b.

DME Oman crude oil futures also declined m-o-m by $8.01, or 11.5%, in June, over the previous month, to settle at $61.85/b. Y-t-d, DME Oman was down by $2.64, or 3.9%, at $65.77/b. On July 10, ICE Brent stood at $67.01/b and NYMEX WTI at $60.43/b.

MIDDLE EAST SAUDI ARABIA

In Saudi Arabia, oil demand slid in May 2019 for the third consecutive month, down by around 0.35 mb/d, or more than 14%, compared to the same month in 2018. All products declined at different rates with the exception of direct crude for burning, which posted moderate gains.

The biggest decline occurred in industrial and power generation fuels, with fuel oil plunging by 0.29 mb/d or around 40% y-o-y. However, crude oil used for power generators was up by around 0.04 mb/d y-o-y, after three months of consecutive y-o-y declines.

Higher air conditioning use stemming from a heat wave in most of the country contributed to higher demand for fuel for electricity generation. In contrast, all transportation fuels, including gasoline, jet/kerosene and diesel fuel, dropped at similar rate of around 8% y-o-y. Slower air travel activities at the beginning of the summer holiday season, combined with lower consumption in the transportation and industrial sectors, discouraged demand for middle distillate.

IRAQ

Iraqi oil consumption declined for the second consecutive month, led by fuel oil, naphtha and jet/kerosene. The overall demand decreased by around 0.02 mb/d or by 3% y-o-y.

UAE AND KUWAIT

Oil demand also grew in UAE and Kuwait by 3% and 2% y-o-y, respectively. While diesel fuel supported oil demand growth in UAE, the Other Product category was responsible for y-o-y increases in Kuwait.

Looking ahead, oil demand is expected to grow marginally in 2019, with the transportation and industrial sectors anticipated to perform better than in 2018 in light of recovering economic activities.

In 2019, Middle East oil demand is anticipated to expand by 0.03 mb/d as compared to 2018.

WORLD OIL DEMAND IN 2020

World oil demand in 2020 is projected to increase by 1.14 mb/d y-o-y, in line with the current year growth.

The OECD is forecast to grow by 0.09 mb/d with Americas being the only OECD region in positive growth territory. OECD Europe and Asia-Pacific oil demand will drop by 0.03 mb/d and 0.07 mb/d y-o-y, respectively.

In the non-OECD region, oil demand is anticipated to add 1.05 mb/d with most of the growth coming from Other Asia, particularly India, followed by China.

Total global oil demand is projected to exceed the 100 mb/d threshold to reach 101.01 mb/d. However, several factors associated with 2020 oil demand projections could influence oil demand behaviour going forward. These factors include: macroeconomic developments in major consuming countries; the strength of substitution with natural gas and other fuels; subsidy programmes and their removal; the effect of commissioning/delays/closure of mega projects in the downstream; and fuel-efficiency programmes, especially in the transportation sector.