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OPEC bulletin 10/17

MOMR … oil market highlights

October 2017

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

The

OPEC Reference Basket

rose to $53.44/

barrel in September, its highest value since July

2015. Crude futures prices also saw gains, with

ICEBrent averaging above the $55/b, supported

by increasing evidence that the oil market is

heading toward rebalancing. Geopolitical ten-

sions and lower distillates stocks also pushed

prices higher. ICE Brent averaged $55.51/b in

September, a gain of $3.64, while NYMEX WTI

increased $1.82 to average $49.88/b. Hedge

funds raised net long position in ICE Brent

and NYMEX WTI futures and options by almost

200,000 contracts. At the end of the month,

the Brent crude contract curve had flipped

into backwardation through December 2021.

The sweet/sour spread widened significantly

in Asia and Europe.

Growth in the

world economy

continues to

improve, with the forecast for 2017 revised up

to 3.6 per cent from 3.5 per cent in last month’s

report. Similarly, the 2018 forecast has been

adjusted higher to 3.5 per cent from 3.4 per

cent. The improving momentum is visible in

all economies, particularly the OECD, which is

seen growing by 2.2 per cent in 2017 and by

an upwardly revised 2.1 per cent in 2018. US

growth in 2018 has been revised up to 2.3 per

cent and the EU to 1.9 per cent for the same

year. Russia has also seen an upward revision

for 2018 to now stand at 1.6 per cent, com-

pared to 1.4 per cent in the previous report.

Growth expectations for India and China were

left unchanged for both 2017 and 2018.

World oil demand

growth in 2017 is now

expected to increase by 1.5 million b/d, repre-

senting an upward revision of around 30,000

b/d from the previous report, mainly reflecting

recent data showing an improvement in eco-

nomic activities. Positive revisionswere primar-

ily a result of higher-than-expected oil demand

from theOECD region and China. In 2018, world

oil demand is anticipated to grow by 1.4m b/d,

following an upward adjustment of 30,000 b/d

over the previous report, due to the improving

economic outlook in the world economy, par-

ticularly China and Russia.

Non-OPEC

oil supply

is expected to grow by

700,000 b/d in 2017, following a downward

revision of 100,000 b/d from the previous

report. In 2018, the growth in non-OPEC oil

supply saw a downward revision of 60,000

b/d to stand at 900,000 b/d. OPEC NGLs and

non-conventional liquids production are seen

averaging 6.5m b/d in 2018, representing an

increase of 200,000 b/d, broadly in line with

growth in the current year. In September, OPEC

crude oil production increased by 88,000 b/d,

according to secondary sources, to average

32.75m b/d.

Product markets

in the Atlantic Basin

improved further in September as the top of

the barrel saw support from higher gasoline

demand. Middle distillate markets continue to

improve globally on the back of healthy demand,

depleted stocks and alongwith regional refinery

maintenance. However, the bottom of the bar-

rel in Asia and Europe saw some pressure on

low demand and high inventory levels. Product

markets are expected to see support in 4Q17

from healthy demand for winter fuels.

Average dirty vessel

spot freight rates

rose in

September, compared to the previous month,

supported by enhanced activity across several

trading routes. Higher Aframax rates were the

main driver behind the strength in sentiment,

while average VLCC and Suezmax freight rates

showed lesser growth. However, the tanker mar-

ket still suffers from oversupply of ships which

often cap rates gains. In the clean tankermarket,

spotfreightratesshowedalsoapositivedevelop-

ment mostly attributed to stronger west of Suez

market as tonnagedemand in theMediterranean

increased. Additionally, prompt replacements

gave a further support to freight rates. Spot

freight rates are expected to strengthen in 4Q17

supported by winter seasonal demand.

Total

OECD commercial oil stocks

fell in

August to stand at 2,996mb. At this level, OECD

commercial oil stocks are 171m b above the

latest five-year average. Crude and products

stocks indicate a surplus of around 146mb and

25m b above the seasonal norm, respectively.

In terms of days of forward cover, OECD com-

mercial stocks stand at 63.2 days in August, 2.6

days higher than the latest five-year average.

Based on the current global oil supply/demand

balance,

OPEC crude

in 2017 is estimated at

32.8m b/d, around 600,000 b/d higher than

in 2016. Similarly, OPEC crude in 2018 is pro-

jected at 33.1m b/d, about 300,000 b/d higher

than in 2017.

The feature article and oil market highlights are taken from OPEC’s Monthly Oil Market Report (MOMR) for October 2017. Published by

the Secretariat’s Petroleum Studies Department, the publication may be downloaded in PDF format from our Website

(www.opec.org)

,

provided OPEC is credited as the source for any usage. The additional graphs and tables on the following pages reflect the latest data on

OPEC Reference Basket and crude and oil product prices in general.