Crude Oil Price Movements
The OPEC Reference Basket rose in February for the third consecutive month, ending up about 2% to average $53.37/b. Crude futures, traded in a relatively narrow range for the second month in a row. High compliance with supply adjustments by OPEC and some non-OPEC producers supported gains. In the crude futures markets, ICE Brent ended 1% higher to average $56/b in February and NYMEX WTI increased 1.6% to $53.46/b. The Brent-WTI spread narrowed at $2.53/b, which is supporting arbitrage economics to the US. Speculative activity hit a fresh record high for the third month in a row, providing additional support to oil prices.
Global economic growth expectations remain at 3.0% in 2016 and 3.2% in 2017. OECD growth in 2017 is unchanged at 1.9%, with growth in US, Euro-zone and Japan seeing no revisions. China is expected to grow by 6.2% in 2017, unchanged from the previous report. India is now expected to see a slight deceleration, following a marginal downward revision to 7.0% in 2017. Russia’s 2017 growth remains at 1.0%, while the forecast for Brazil was revised slightly higher to 0.5%.
World Oil Demand
The world oil demand growth estimate for 2016 was revised marginally higher by around 50 tb/d to now show growth of 1.38 mb/d to average 95.05 mb/d. Revisions were driven primarily by higher-than-anticipated 4Q16 oil demand in OECD Europe, and Asia Pacific, as well as China, partially offset by minor downward adjustments in the Middle East. For 2017, oil demand growth is anticipated to be around 1.26 mb/d, higher by 70 tb/d from previous month projections, to average 96.31 mb/d. The upward adjustments were due to more optimistic expectations for oil demand in OECD Europe, as well as Asia Pacific.
World Oil Supply
Non-OPEC oil supply growth is estimated to show a contraction of 0.66 mb/d in 2016, in line with the previous report, to average 57.34 mb/d. Higher 4Q16 growth in Canada and Other OECD Europe was offset by downward revisions in the US, Norway, Australia, Brunei and Azerbaijan. In 2017, non-OPEC oil supply is projected to grow by 0.40 mb/d, following an upward revision of 0.16 mb/d to average 57.74 mb/d. An improving outlook for Canadian oil sands and US supply were the main contributors to the revision. OPEC NGLs production in 2017 was revised down by 20 tb/d to now show growth of 0.13 mb/d. In February, OPEC production decreased by 0.14 mb/d, according to secondary sources, to average 31.96 mb/d.
Product Markets and Refining Operations
Product markets exhibited a mixed performance in the Atlantic Basin. Higher export opportunities for gasoline and strong middle distillates demand supported the European market, while margins fell in the US due to the weakening seen at the top and bottom of the barrels. Meanwhile, refinery margins in Asia continued to be healthy ahead of the spring refinery maintenance season, despite a slight fall due to some bearish signals in the gasoline market. Tanker Market Dirty tanker spot freight rates declined in February, with rates falling for all vessels on all reported routes. Lower freight rates were registered on the back of limited activity, the Chinese New Year holidays in the East and fleet expansions. VLCC, Suezmax and Aframax rates declined 21% on average from a month before.
OECD commercial oil stocks rose in January to stand at 3,006 mb. At this level, OECD commercial oil stocks were 278 mb above the five-year average. Crude and products showed a surplus of around 209 mb and 69 mb above the seasonal norm respectively. In terms of days of forward cover, OECD commercial stocks stood at 63.8 days, some 4.9 days higher than the five-year average.
Balance of Supply and Demand
Demand for OPEC crude in 2016 stands at 31.6 mb/d, some 1.9 mb/d higher than in the previous year. For 2017, demand for OPEC crude is projected at 32.4 mb/d, around 0.7 mb/d higher than in the current year.