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Feature Article

OPEC Monthly Oil Market Report – October 2017

iii

Feature Article

The Winter Product Markets Outlook

Oil product markets in the major consuming

regions performed well this summer, favoured by

the seasonally-higher gasoline demand. US

refinery markets averaged as high as $20/b by the

end of the summer, representing an improvement

over the same period last year and close to the

high levels seen in July 2015 (

Graph 1

). Products

markets in Europe were also healthy, supported by

the strengthening middle distillate complex, as well

as planned maintenance. Meanwhile, a slight

improvement was observed in the Asian market

due to continued healthy demand in the region this

year. In terms of individual products, the gasoline

market performed better this summer compared to

Graph 1: Refinery margins

the same period last year. Healthy demand along with arbitrage volumes heading to the US Atlantic

Coast supported the refinery margins. Middle distillates also improved, boosted by healthy economic

activity.

Looking ahead to the coming quarters, crack spreads tend to peak during the driving season and then

drop into the fourth quarter, as lower gasoline demand outweighs the pick-up in distillate consumption

from colder weather. Last year, the warmer-than-normal winter weather particularly weighed on product

markets. In contrast, the current forecast for this year expects winter temperatures to be colder than last

year, leading to higher consumption in distillates, which include heating oil.

With the market moving into the winter season,

distillate fuel supplies are notably tight,

representing a change from the excess supplies

seen in the last two years. US distillate inventories

started 2017 above the five-year range but have

since fallen below the five-year average (

Graph 2

).

As noted in last month’s Feature Article, disruptions

caused by Hurricane Harvey have deepened the

already steady drawdown in US distillate stocks.

Although daily refinery margins fell back from a

spike to $26.20/b, they still remained around $12/b,

well above the $6-7/b level seen over the same

period last year.

Graph 2: US weekly distillates inventories

An additional factor supporting middle distillates

has been support from bullish sentiment in the

futures market. Hedge funds have accumulated a

record high heating oil futures positions (

Graph 3

),

anticipating distillate stocks will remain relatively

tight this winter.

As a result, refinery margins are likely to continue

to see support, remaining at seasonally-high levels.

This, together the ongoing improvement in global

economic activity, should provide support for the oil

market over the winter season.

Graph 3: US heating oil managed money

futures positions, NYMEX

0

5

10

15

20

Jan 15

Mar 15

May 15

Jul 15

Sep 15

Nov 15

Jan 16

Mar 16

May 16

Jul 16

Sep 16

Nov 16

Jan 17

Mar 17

May 17

Jul 17

Sep 17

US$/b

Brent

Oman

WTI

Note: * Based on data for week ending 6 October.

Sources: Argus and OPEC Secretariat.

* Oct 17

100

120

140

160

180

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52

mb

Week

Avg. 2012-16

2016

2017

Min/Max

2012-16

Sources: Energy Information Administration and OPEC Secretariat.

-80

-40

0

40

80

Jan 16

Mar 16

May 16

Jul 16

Sep 16

Nov 16

Jan 17

Mar 17

May 17

Jul 17

Sep 17

Long positions

Short positions

Net long positions

'000 contracts

Sources: CFTC and OPEC Secretariat.