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Monthly Oil Market Report

O P E C

13 November 2017

Feature article:

Recent Developments in Global Oil Inventories

Oilmarkethighlights

Featurearticle

Crudeoilpricemovements

Commoditymarkets

Worldeconomy

Worldoildemand

Worldoilsupply

Productmarketsand refineryoperations

Tankermarket

Oil trade

Stockmovements

Balanceofsupplyanddemand

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OPEC bulletin 11/17

November

2017

Developments in global

oil inventories

The historic efforts made by OPEC and non-OPEC pro-

ducers over the past year to rebalance the oil market has

been in response to the levels of global oversupply and

the related stock overhang. In fact, from 2014 through

2016, global oil inventories grew rapidly as global sup-

ply outpaced world demand. This was not just because

of price pressures. According to its

Monthly Oil Market

Report (MOMR)

for November, OPEC saw that during the

same 2014–16 period, “the crude futures’ forward curve

flipped into a prolonged contango for the first time since

2010, providing an economic incentive to store signifi-

cant volumes of crude at sea.”

Regardless of the incentive or driver, various indica-

tors showed that the stock levels were at very high lev-

els. OECD commercial stock levels — a key indicator of

the state of the oil market — reached at a record-high of

more than 380million barrels over the five-year average

by February of this year, according to the

MOMR

, indicat-

ing the excess supply in the market.

Thus, faced with such conditions, the landmark pro-

duction adjustment decision taken by the OPEC and

non-OPEC participating oil producing nations at the

end of 2016, and the ensuing document known as the

‘Declaration of Cooperation’ (as well as its renewal and

extension inMay of this year), were quite necessary. They

were “necessary responses to the urgent need to bring

forward market rebalancing.”

In fact, as the recent

MOMR

states, the “distin-

guished efforts” of all those producers participating in

the Declaration “focused on accelerating the drawdown

of the global stock overhang in order to hasten the return

of sustainable oil market stability.” The result was that

total OECD commercial stocks saw a drop of 83m b in

the first three quarters of this year, compared to a build

of 38m b in the same period in 2016.

The

MOMR

provides the following additional details:

“In the first three quarters of 2017, crude inventories [fell]

by 23m b, while refined product stocks in the OECD […]

declined by 60m b, driven mainly by improving demand

in OECD countries. In the first three quarters of 2017,

the stock draw came as global oil demand growth rose

by 1.6m b/d compared to the same period in 2016, out-

pacing the 700,000 b/d net increase in global oil supply

over the same period.”

One fact that has been noted by the

MOMR

is that

the rise in global supply came solely from the countries

outside the ‘Declaration of Cooperation’. “During the first

three quarters of 2017, OPEC Member Countries reduced

their average production by 600,000 b/d and non-OPEC

participants by 200,000 b/d com-

pared to the same period last year,

while other non-OPEC oil produc-

ing countries increased their sup-

ply by 900,000 b/d,” according

to the November

MOMR

.

It further highlights the fact

that during the same period,

“the conformity of the OPEC

and non-OPEC participants

reached 102 per cent com-

pared to their agreed refer-

ence months.” Since then,

the excess overhang has

fallen considerably—“with

the difference to the five-

year average reduced by

around 183m b since the

beginning of this year to

stand at 154m b in September.”

Separately, crude and products indicated surpluses

of, respectively, 129m b and 25m b above the seasonal

norm. Also, on regional basis, the bulk of this overhang

was located inOECDAmericas followed by OECD Europe,

whileOECDAsia Pacific has remained broadly in linewith

the five-year average.

Finally, the

MOMR

also notes that “[a]mid improving

OECD demand, inventories in terms of days of forward

cover have fallen from more than 65 days in mid-2016

to currently stand at 62.3 days. Similarly, the deviation

with the five-year average has been reducing from 6.7

days to just 1.9 days.” At the same time, floating stor-

age for crude and products has been declining since the

beginning of 2017, dropping by around 50m b to 87m b

at the end of October 2017. This trend recently saw ac-

celeration, with a shift in the ICE Brent forward curve to

backwardation, which encouraged de-stocking, stated

the

MOMR

.

Looking ahead, the lead article in the

MOMR

conclud-

ed that the “high conformity levels of participating OPEC

and non-OPEC producing countries, in accordance with

the ‘Declaration Cooperation’, have clearly played a key

role in supporting stability in the oil market and placing

it on a more sustainable path.”

OPEC and participating non-OPEC countrieswill con-

tinue to monitor market conditions and stock levels, and

will meet when necessary to continue to assess develop-

ment — and consider how best to continue these efforts

in the months and year to come.

M a r k e t R e v i e w