The OPEC Reference Basket fell for the second straight month in May to $108.07/b, representing a decline of $10.11 or 9.4%, the largest month-to-month loss since December 2008. Futures prices also fell sharply in May. Nymex WTI declined $8.63 or 8.4%, on top of the previous month’s losses, and ICE Brent fell by more than $10.20 or 8.5%, also down for the second month in a row. Numerous factors were behind the fall, including a massive  liquidation of net-long speculative positions, heightened Euro-zone concerns, a weakening economic outlook, and a steady rise in global crude stocks. In the first week of June, crude oil futures prices fell sharply. The decline came as weak US jobs data, a slowdown in Chinese manufacturing activity and a deepening Euro-zone crisis sparked another broad market sell-off. On 11 June the ORB stood at $97.34/b.
World economic growth expectations for 2012 remain unchanged at 3.3%. The US growth forecast has been revised down by 0.1 percentage points (pp) to 2.2%, amid a slight slowing down. The forecast for the Euro-zone is unchanged, showing a contraction of 0.4%. Japan enjoyed a solid first quarter and, hence, the yearly growth has been revised up by 0.2 pp to 2.0%. China is showing signs of being affected by the global slow-down, but remains unchanged at 8.2% due to expected stimulus measures. India experienced a significant slow-down in the first quarter and 2012 has been revised down to 6.4% from 6.9%.
World oil demand growth in 2012 is expected at 0.9 mb/d, unchanged from the previous report. The first half of this year experienced various economic developments world-wide, which placed a great amount of uncertainty on oil demand. The second half of the year is likely to experience an even greater degree of uncertainty. The upcoming driving season in the Northern Hemisphere might be affected by retail gasoline prices and economic development, leading to a further decline in world oil demand. The shutdown of Japan’s nuclear plants is leading to more fuel and crude oil usage in the power sector. However, should Japan decide to bring back some of its nuclear power plants into service, the recent surge in the country’s oil usage could be impacted.
Non-OPEC oil supply growth is projected at 0.7 mb/d in 2012, following an upward revision of 30 tb/d from the last report, supported by strong anticipated growth from the US. Estimated non-OPEC supply growth in 2011 stands at 90 tb/d. OPEC NGLs and nonconventional oils are expected to average 5.7 mb/d in 2012, a gain of 0.4 mb/d over the previous year. In May, OPEC crude oil production averaged 31.58 mb/d, according to secondary sources, a decline of 58 tb/d over the previous month.
Product markets in May reversed the gains seen in the previous month. This was mainly due to losses at the top of the barrel, following disappointing demand for naphtha in the petrochemical sector worldwide, as well as from the easing in the gasoline market in the Atlantic Basin on news of the re-start of some closed refineries. Along with additional pressure coming from the supply side with the end of maintenance in Asia, these factors led to a fall in refinery margins across the board, despite the steep decline in crude oil prices.
In the tanker market, dirty spot freight rates were mixed in May with average VLCC rates decreasing, while average Suezmax and Aframax rates saw gains. High tonnage availability and refinery maintenance affected rates in May. Clean spot freight rates fell in the East and rose in the West from the previous month. OPEC spot fixtures increased by 12% in May compared to the previous month. Sailings from OPEC were steady in May, while arrivals in the US increased.
US commercial oil stocks rose by 17.7 mb in May, a gain of 9.1 mb over a year ago and nearly 30.0 mb higher than the five-year average. This build was attributed to both crude and products, which increased by 8.7 mb and 9.0 mb respectively. In Japan, the most recent monthly data shows that commercial oil stocks increased by 8.4 mb in April, leaving them still at 8.4 mb below a year ago, but in line with the seasonal average. The total stock-build was divided between crude and products which rose by 2.7 mb and 5.7 mb respectively.
Demand for OPEC crude in 2011 remained unchanged from the previous report to stand at 30.1 mb/d, indicating growth of 0.4 mb/d. In 2012, demand for OPEC crude is projected to average 29.9 mb/d, representing a decline of 0.1 mb/d from last year’s level and a minor change from the previous report.
Source: OPEC