Crude Oil Price Movements
Crude oil spot prices rose firmly in June, extending previous monthly gains, driven by a rally in futures markets, as well as a strengthening global physical crude market, amid higher crude demand from refiners. The OPEC Reference Basket (ORB) increased for the second-consecutive month in June, reaching its highest monthly average since October 2018. The ORB value rose $4.98 m-o-m, or 7.4%, to settle at an average of $71.89/b. Year-to-date (y-t-d), the ORB averaged $63.85/b, representing a gain of $24.64, or 62.9%, compared to the same month last year. In June, investors turned increasingly optimistic about the outlook for the oil demand recovery amid expectations for a tighter global oil market in 2H21. The ICE Brent front month rose $5.10 m-o-m in June, or 7.5%, to average $73.41/b, and NYMEX WTI increased $6.20, or 9.5%, m-o-m to average $71.35/b. Consequently, the ICE Brent and NYMEX WTI spread narrowed by $1.10 m-o-m to average $2.06/b in June, its lowest level since October 2020. The backwardation structure of all three major oil benchmarks strengthened in June on a tightening outlook for oil supply and demand fundamentals in the coming months. Hedge funds and other money managers boosted bullish positions related to crude in June, particularly in WTI, as speculators focus on expectations for rising oil prices.
World Economy
The global economic growth forecast for 2021 remains unchanged at 5.5%. In an initial assessment, global economic growth for 2022 is forecast at 4.1%. However, future global growth continues to be impacted by uncertainties, including the spread of COVID-19 variants and the pace of the global vaccine rollout. In addition, sovereign debt levels in many regions, together with inflationary pressures and central bank responses, remain key factors that require close monitoring. Nevertheless, upside potential could materialize as ongoing containment COVID-19 measures in combination with additional fiscal and monetary stimulus could turn out to be more effective than envisaged, leading to further gains in consumption and investments. US economic growth in 2021 remains at 6.4%, followed by growth of 3.6% in 2022. The Euro-zone economic growth in 2021 remains at 4.1%, followed by growth of 3.0% in 2022. Similarly, Japan’s economic growth forecast remains at 2.8% for 2021, followed by growth of 2.0% in 2022. After an unchanged growth forecast of 8.5% in 2021, China’s economic growth forecast for 2022 stands at 6.3%. India’s 2021 growth forecast remains at 9.5%, followed by growth of 6.8% in 2022. Brazil’s growth forecast for 2021 was revised up to 3.2%, followed by growth of 2.5% in 2022. Russia’s forecast for 2021 remains at 3.0%, followed by growth of 2.3% in 2022.
World Oil Demand
World oil demand growth in 2021 is forecast at 6.0 mb/d, unchanged from last month’s assessment, although there have been some regional revisions. Total oil demand is projected to average 96.6 mb/d. The 1Q21 was revised lower, amid slower than anticipated demand in the main OECD consuming countries. This was counterbalanced by better-than-expected data from OECD Americas in 2Q21, which is now projected to last through the 3Q21. Solid expectations exist for global economic growth in 2022. These include improved containment of COVID-19, particularly in emerging and developing countries, which are forecast to spur oil demand to reach pre-pandemic levels in 2022. World oil demand is anticipated to rise by 3.3 mb/d y-o-y in 2022, while total world oil demand is projected to average 99.86 mb/d, with the 100 mb/d mark exceeded in 2H22. OECD oil demand is anticipated to increase by 1.5 mb/d, as OECD Americas is expected to rise firmly with US oil demand only marginally below 2019 levels, mainly due to lagging transportation fuel demand. Non-OECD oil demand is projected to show an increase of 1.8 mb/d, with gains in China and India exceeding pre-pandemic levels, supported by a respectable recovery in transportation fuels and firm industrial fuel demand, including petrochemical feedstock.
World Oil Supply
Non-OPEC liquids supply in 2021 is revised down by 0.03 mb/d, despite upward revisions to the US and Canada. Growth is now at 0.81 mb/d for an average of 63.8 mb/d. The preliminary US liquids production recovery in 2Q21 indicates an increase of 1 mb/d, q-o-q. The main drivers for 2021 supply growth are expected to be Canada, China, Norway, Brazil and Guyana, with the US now expected to see y-o-y growth of 0.06 mb/d. The initial forecast for 2022 sees non-OPEC liquids supply growing by 2.1 mb/d, with a 1.1 mb/d expansion in in the OECD, 0.8 mb/d growth in the non-OECD and a 0.1 mb/d recovery in processing gains. At the same time, uncertainty remains high regarding financial and operational aspects of US production. OPEC NGLs are forecast to grow by 0.1 mb/d y-o-y in 2021 and 2022 to average 5.2 mb/d and 5.3 mb/d, respectively. OPEC crude oil production in June increased m-o-m by 0.59 mb/d, to average 26.03 mb/d, according to available secondary sources.
Product Markets and Refining Operations
Refinery margins in all main trading hubs declined in June as refineries ramped up processing rates following peak spring refinery maintenance season, which led to stronger product availability. This led to a longer overall product balance, as product output outpaced fuel consumption recovery, weighing on product crack spreads. The ongoing vaccination rollout and optimism following the relaxation of lockdown measures in many countries, leading to expectations of higher fuel consumption levels going forward, contributed to the rise in refinery runs, which are expected to remain strong in the near term.
Tanker Market
Dirty tanker rates remained at depressed levels in June as ample tonnage availability and limited tanker demand continued to weigh on the market. The search for better rates have even encouraged the use of new built VLCCs to carry clean products, eroding clean tanker rates. New deliveries, minimal scrapping and weak tanker demand point to a continued sluggish tanker market, possibly into next year.
Crude and Refined Products Trade
The US provided key seasonal support for global trade flows in June, according to preliminary data. US crude imports rose 0.7 mb/d m-o-m, or more than 11%, to average 6.7 mb/d in June, the highest since December 2019. US crude exports also rose sharply m-o-m in June, jumping 0.8 mb/d or almost 30%, to average 3.6 mb/d, the second-highest on record. China’s crude oil imports averaged 9.7 mb/d in May, representing a further decline of 0.2 mb/d or 2% m-o-m and a cumulative decline of 2.1 mb/d or 18% over the last two months. Preliminary figures for June show the country’s crude imports ticking up, but remaining below 10 mb/d. India’s crude imports fell to a seven-month low in May, as the peak of the second COVID-19 wave arrived in the middle of that the month. With reduced COVID-19 infections at the end of June, refiners in India have begun began to slowly lift run rates which could strengthen crude inflows in July. Meanwhile, Japan’s crude imports fell back in May from the strong levels seen the month before, averaging 2.4 mb/d, as renewed lockdown measures undermined expectations for product demand. The start of the 2021 Tokyo Olympics in July should provide some boost to crude and product imports, although uncertainty regarding COVID-19 measures are clouding product needs.
Commercial Stock Movements
Preliminary May data sees total OECD commercial oil stocks up by 8.3 mb m-o-m. At 2,934 mb, inventories were 276.9 mb lower than the same month last year; 86.6 mb lower than the latest five-year average; and 21.7 mb below the 2015-2019 average. Within components, crude and product stocks were up by 1.1 mb and 7.2 mb, respectively. At 1,466 mb, OECD crude stocks stood 60.8 mb below the latest five-year average and 32.5 mb below the 2015-2019 average. At 1,468 mb, OECD product stocks were 25.9 mb below the latest five-year average, but 10.8 mb above the 2015-2019 average. In terms of days of forward cover, OECD commercial stocks fell 0.8 days m-o-m in May to stand at 64.2 days. This is 13.4 days below the May 2020 level, 0.8 days below the latest five-year average, but 2.4 days above the 2015-2019 average.
Balance of Supply and Demand
Demand for OPEC crude in 2021 remains unchanged from the previous report at 27.7 mb/d, around 5.0 mb/d higher than in 2020. Based on the initial forecasts for world oil demand and non-OPEC supply in 2022, demand for OPEC crude is forecast at 28.7 mb/d, some 1.1 mb/d higher than the 2021 level.
Source: OPEC