Crude Oil Price Movements
The OPEC Reference Basket (ORB) fell in December 2018 for the second consecutive month, dropping $8.39, or 12.8%, month-on-month (m-o-m) to average $56.94/b. This is the lowest level since October 2017. Oil prices were pressured by concerns surrounding global oversupply and softening oil demand, amid high uncertainty about global economic growth. Nonetheless, the average ORB registered a significant increase of $17.35, or 33%, in 2018, compared with the previous year. The second consecutive yearly rise came amid a more balanced global oil market for most of the year, which was enhanced by the voluntary production adjustments under the ‘Declaration of Cooperation’, as well as from a continuing general healthy global economy and steady oil demand growth in 2018. In December, ICE Brent was on average $8.27, or 12.5%, lower m-o-m at $57.67/b, while NYMEX WTI fell by $7.71, or 13.6%, m-o-m to average $48.98/b. The Brent and WTI market structures remained in contango, while the Dubai market structure was marginally flatter.
World Economy
The global economic growth forecast remains unchanged at 3.7% for 2018 and 3.5% for 2019. In the OECD, US growth is unchanged at 2.9% for 2018 and 2.6% for 2019. Euro-zone growth remains at 1.9% for 2018 and 1.7% for 2019. GDP growth in Japan was revised down slightly to 0.8% for 2018 and 1.0% for 2019. In the non-OECD countries, both India’s and China’s growth forecasts remain at 7.5% and 6.5% for 2018, respectively, and at 7.2% and 6.1%, respectively, for 2019. Growth in Brazil remains unchanged at 1.1% for 2018 and 1.8% for 2019. Russia’s GDP growth forecast is also unchanged at 1.6% for 2018 and 1.7% for 2019. The upside to global growth is limited, with the risk remaining skewed to the downside amid ongoing trade tensions, monetary tightening and geopolitical challenges.
World Oil Demand
In 2018, world oil demand growth is estimated at 1.50 mb/d, unchanged from last month’s report. OECD Americas continues to lead growth in the OECD region in response to strong gains for light and middle distillates throughout 2018. Other Asia is estimated to lead demand growth in the non-OECD, and globally, on strengthening product demand growth in India, Indonesia, Singapore and Thailand. Total oil demand is now pegged at 98.78 mb/d. In 2019, world oil demand is forecast to rise by 1.29 mb/d, also in line with last month’s projections. As a result, total world oil demand is projected to reach 100.08 mb/d for the year. Oil demand growth is expected to originate mainly from Other Asia, led by India, followed by China and OECD Americas. OECD countries are anticipated to rise by 0.25 mb/d in 2019, while non-OECD countries are projected to drive oil demand growth by adding an estimated 1.04 mb/d.
World Oil Supply
Non-OPEC oil supply growth in 2018 – including the State of Qatar – is estimated at 2.61 mb/d, an upward revision of 0.05 mb/d from the previous month’s assessment to average 62.06 mb/d. This compares to an average of 60.03 mb/d – excluding Qatar liquids supply – in the December MOMR. The US, Canada, Russia and Kazakhstan are seen to be the main growth drivers, while Mexico and Norway are estimated to show the largest declines. Non-OPEC oil supply growth in 2019 was revised down by 0.06 mb/d to 2.10 mb/d and is now forecast to average 64.16 mb/d for the year. This was mainly due to a downward revision in Canada’s supply forecast. The US, Brazil, Russia and the UK are projected to be the main drivers for this year’s growth, while Mexico and Norway are expected to see sizeable declines, along with a mild y-o-y decline of 0.05 mb/d in Canada. OPEC NGLs – excluding Qatar – in 2018 and 2019 are now expected to grow by 0.04 mb/d and 0.11 mb/d, respectively, to show lower average levels of 4.98 mb/d and 5.09 mb/d. In December 2018, OPEC crude oil production decreased by 751 tb/d to average 31.58 mb/d, according to secondary sources.
Product Markets and Refining Operations
Product Markets in all main trading hubs weakened in December. The mild winter weather witnessed in early December, along with disappointing diesel and kerosene performances attributed to strong stock builds, as well as lower arbitrage opportunities and ample supplies, weighed on margins. Across the barrel, in all main regions, naphtha was the only product to exhibit a positive performance, supported by a pick-up in petrochemical requirements, particularly in Asia, which limited margin losses compared with other regions.
Tanker Market
December saw a softer sentiment in the tanker market, with average dirty tanker spot freights relatively stable, influenced by a drop in VLCC and Suezmax rates from the previous month. Lower rates came on the back of limited demand, as a result of the holiday season, which led to thin market activity in general. Nevertheless, the drop was offset by higher rates registered by the Aframax class, supported by severe weather conditions, delays and replacements in December. Clean tanker spot freight rates showed a positive performance on all routes, with significant gains registered on both the eastern and western directions of Suez.
Stock Movements
Preliminary data for November 2018 showed that total OECD commercial oil stocks fell slightly by 0.7 mb m-o-m to stand at 2,871 mb. This was 32 mb lower than the same month in the previous year, but 23 mb above the latest five-year average. Within the components, crude stocks indicated a surplus of 28.5 mb, while product stocks were 5.5 mb below the latest five-year average. In terms of days of forward cover, OECD commercial stocks fell by 0.4 days m-o-m in November to stand at 59.2 days. This was 1.5 days below the same period in 2017 and 1.4 days below the latest five-year average.
Balance of Supply and Demand
Demand for OPEC crude in 2018 – excluding the State of Qatar – is estimated at 31.7 mb/d, 1.2 mb/d lower than the 2017 level. In 2019, demand for OPEC crude is forecast at 30.8 mb/d, around 0.9 mb/d lower than the 2018 estimate.
Source: OPEC