Disappointing North Sea production and downward revisions to output growth has become a persistent trend affecting Brent futures, said Deutsche Bank in a report.“We ...note that underlying the strength in Brent has been the declining trend in North Sea supply. Loadings of BFOE, which underpin Brent futures, sunk to the lowest level in five years in October 2012 (according to Bloomberg data). Loadings have since recovered to some extent but the downward trend remains and the latest indications are that March loadings will be down on the month.” the Bank said.
While logistical catches weighed on WTI, Brent’s rally has gathered momentum benefiting from a swathe of positive economic data out of the US, Europe and China, which renewed optimism over global growth and consequently global oil demand.
The latest oil data out of China seemed to confirm this optimism. China’s crude oil imports in January averaged a near record 6 mln bbl/day, up 420kbd YoY and 350kbd MoM. Only twice have crude oil imports exceeded this level – Feb 2012 (6.03 mln bbl/day) and May 2012 (6.08 mln bb/day) – when China was in the midst of a period of significant oil stockpiling spurred on by escalating risk of supply disruptions notably in Iran and Sudan.
“Our models suggest refinery capacity expansions and demand rather than stockpiling are the driving force behind last month’s high crude oil imports. Preliminary data for January also implies that China’s total oil demand (on an apparent basis) rose by over 7% YoY, marking a strong start to the year.” the Bank said.
Chinese demand growth rose by a rather anaemic 4% on an annual average basis in 2012 due to weak demand concentrated in the first three quarters. Demand in Q4 last year rose by a robust 9% YoY closing the year on a strong note.
Demand optimism has been met with supply concerns as early OPEC supply surveys suggest Saudi Arabia cut back production potentially by too much and too quickly. According to Reuters, the kingdom pumped about 9 mln bbl/day, the lowest level since May 2011 and down about 1 mln bbl/day from last summer’s peak levels
The January figure implies Saudi Arabia has reduced supply by 850kbd since October 2012, referencing IEA data. While the global oil balance had implied that the ‘call on OPEC crude’ would be sharply lower in Q1 2013 by about 1 mln bbl/day on a sequential basis (based on IEA assessments), higher demand prospects implies a higher need for OPEC supply.
Assuming China’s oil demand growth averages 7% in Q1 2013, this implies that the ‘call on OPEC crude’ would be down by about 700kbd in Q1 2013 from Q4 2012, rather than 1 mln bbl/day, the Bank said.
Source: Deutsche Bank