The OPEC Reference Basket fell 4.2% in May to average $49.20/b. Crude futures prices tumbled as supply continue to be plentiful with US output continuing its upward trend this year and despite OPEC and non-OPEC production adjustments. ICE Brent ended 4.5% lower at $51.40/b, while NYMEX WTI dropped 5% to $48.54/b. The Brent-WTI spread widened to $2.86/b, further supporting US exports. Money managers decreased bets on higher oil prices in both exchanges, trimming combined net length positions in futures and options to November 2016 levels.
After stronger-than-anticipated growth momentum since the beginning of the year, the forecast for global economic growth has been revised up to 3.4% in 2017, following growth of 3.1% in 2016. The recent growth dynamic in the global economy has been confirmed with the exception of potentially temporary dips in the US and India. US growth in 2017 remains at 2.2% and the Euro-zone at 1.7%, while Japan’s growth forecast was revised up to 1.4%. The forecasts for China and India remain unchanged at 6.5% and 7.0%, respectively, in 2017. Similarly, the forecasts for Russia and Brazil also remain in line with the previous
report at 1.2% and 0.5%, respectively.
World Oil Demand
World oil demand in 2016 is expected to grow by 1.44 mb/d in line with the previous report to average 95.12 mb/d. Projected oil demand growth for 2017 was also unchanged at 1.27 mb/d to average 96.38 mb/d.
OECD consumption is seen growing by 0.23 mb/d in 2017, in line with the previous report, following offsetting revisions in OECD Americas and Asia Pacific. The forecast for oil demand growth in China and India have also been left unchanged at 0.34 mb/d and 0.12 mb/d, respectively.
World Oil Supply
Non-OPEC oil supply is estimated to have averaged 57.30 mb/d in 2016, a contraction of 0.71 mb/d and unchanged from the previous report. In 2017, non-OPEC oil supply is projected to grow by 0.84 mb/d, following a downward revision of 0.11 mb/d to average 58.14 mb/d. Lower output from Russia, as well as Brunei, the Sudans and Kazakhstan following the OPEC and non-OPEC decision to extend production adjustments for nine months offset higher growth in Canada and the UK. US oil supply growth for 2017 was also revised down by 30 tb/d due to lower output than expected in 1Q17. OPEC NGLs production and non-conventional liquids forecast to grow by 0.17 mb/d in 2017 to average 6.22 mb/d. In May 2017, OPEC crude oil production increased by 336 tb/d to average 32.14 mb/d, according to secondary sources.
Product Markets and Refining Operations
Refinery margins in the Atlantic Basin fell in May, despite the strength seen in US gasoline crack spreads amid higher domestic demand. This was due to weakness in the middle of the barrel as relatively higher yields and increased refinery utilisation outweighed the improvement in gasoil demand. Meanwhile in Asia, margins weakened on supply pressure following the peak of the maintenance season amid increasing inflows to the region.
Tanker market sentiment weakened in May as spot freight rates in both dirty and clean segments mostly dropped from the previous month. The decline in freight rates was driven by light tonnage demand and high vessels availability. Aframax rates were the exception, with average spot freight rates improving due to high tonnage demand for several destinations combined with port delays and replacements. Clean tanker freight rates declined on average, mainly due to a weak market West of Suez.
Total OECD commercial oil stocks fell in April to stand at 3,005 mb. At this level, OECD commercial oil stocks were 251 mb above the latest five-year average. Crude and products stocks stood at a surplus above the seasonal norm of around 171 mb and 80 mb, respectively. In terms of days of forward cover, OECD commercial stocks stood at 64.1 days, some 4.1 days higher than the latest five-year average.
Balance of Supply and Demand
Demand for OPEC crude stood at 31.8 mb/d in 2016, some 2.0 mb/d higher than in 2015. In 2017, the demand for OPEC crude is projected at 32.0 mb/d, around 0.3 mb/d higher than the previous year.