66 OPEC bulletin 6–7/20 MOMR … oil market highlights June 2020 The feature article and oil market highlights are taken from OPEC’s Monthly Oil Market Report (MOMR) for June 2020. 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. Crude oil price movements — Spot crude oil pric- es rebounded in May from low levels registered a month earlier, as physical market fundamentals improved significantly. TheOPECReference Basket (ORB) value rose by $7.51, or 42.5 per cent, m-o- m, to stand at $25.17/b. Crude oil futures prices also bounced back in May, amid renewed opti- mism on the outlook of global oil market funda- mentals and expectations for a further recovery of oil demand and tightening global supply. ICE Brent increased by $5.78, or 21.7 per cent, m-o- m to average $32.41/b, and NYMEX WTI soared by $11.83, or 70.8 per cent, m-o-m to average $28.53/b. The contango structure of oil futures prices flattened considerably over the month in all three markets, suggesting that the supply- demand fundamentals are gradually improving. Hedge funds and other money managers turned more positive about the outlook for crude oil pric- es and continued to raise their combined futures and options net long positions in both ICE Brent and NYMEX WTI contracts. Worldeconomy —Theworldeconomicgrowthfore- cast remains unchanged, declining by 3.4 per cent y-o-y in 2020, following global economic growth of 2.9 per cent in 2019. The major economies’ fore- casts remain unchanged this month, except for India. The US is forecast to contract by 5.2 per cent in 2020, following growth of 2.3 per cent in 2019. An even larger decline of 8.0 per cent is expected in the Euro-zone in 2020, compared to growth of 1.2 per cent in 2019. Japan is forecast to contract by 5.1 per cent in 2020, comparing to growth of 0.7 per cent in 2019. China’s 2020 GDP is forecast to grow by 1.3 per cent, following growth of 6.1 per cent in 2019. India’s forecast was revised down to decline by 0.8 per cent, a sharp slowdown from downwardly revised growth of 4.9 per cent in 2019. Brazil’s economy is forecast to contract by 6.0 per cent in 2020, following growth of 1.1 per cent in 2019. Russia’s economy is forecast to contract by 4.5 per cent in 2020, after growth of 1.3 per cent in 2019, not only due to COVID-19, but also because of the considerable decline in oil prices. World oil demand —World oil demand is projected to decrease by 9.1m b/d in 2020, unchanged from the previous month’s assessment. The COVID-19 pandemic has negatively affected global eco- nomic activities, eliminating global oil demand growth potential and leading to a y-o-y decline of 6.4m b/d in 1Q20 and by 17.3m b/d y-o-y in 2Q20. Transportation fuels are projected tobe under pres- sure during 2020as lockdowns in various countries particularly the US, Europe, India and the Middle East reduce demand for gasoline and jet fuel, as air travel and distances travelled anticipated to significantly decline compared with a year earlier. Furthermore, decreased manufacturing activities, compared with the previous year, will limit indus- trial fuel requirements. Petrochemical feedstock is expected to be driven by slower end-user require- ments for plastics and plastic products, compared to previous years. Considering the large uncertain- ties going forward, new data and developments may warrant further revisions in the near term. For 2019, world oil demand growth is kept unchanged at 830,000 b/d as OECD oil demand declined by 100,000b/dwhilenon-OECDoildemandincreased by 930,000 b/d. World oil supply — Non-OPEC liquids produc- tion growth in 2020 (including processing gains) is revised up by 300,000 b/d from the previous month’s assessment and is now forecast to de- cline by 3.2m b/d y-o-y. The revision is based on oil production estimations for April and May in non-OPEC countries participating in ‘Declaration of Cooperation’ (DoC). Strong conformity with the voluntary production adjustments by the ten non- OPEC Participating Countries in the DoC led to a drop in crude oil output of more than 2.59m b/d in May, while OPEC-10 cut 6.25m b/d m-o-m. At the same time, preliminary oil production outside the DoC showed a decrease by 2.0m b/d in April and furthermore by 800,000 b/d in May, mainly in the US and Canada. Oil supply in 2020 is forecast to show growth only in Norway, Brazil, Guyana and Australia. Non-OPEC liquids production growth in 2019 was revised up by 10,000 b/d owing to a minor upward revision in Latin America’s produc- tion in 4Q19 and is now estimated to have grown by 2.03m b/d to average 65.03m b/d for the year. OPEC NGLs are estimated to have declined by 80,000 b/d y-o-y in 2019 to average 5.26m b/d, while the preliminary 2020 forecast indicates a decline of 30,000 b/d to average 5.23mb/d. OPEC crude oil production in May decreased by 6,300 b/d m-o-m to average 24.19m b/d, according to secondary sources. Product markets and refining operations — Refinery margins globally came under heavy pres- sure and plummeted to record lows on the back of oil product gluts amid stronger feedstock prices. The middle section of the barrel suffered the most as the manufacturing, freight and distribution systems still operate at reduced rates. Although gasoline markets showed some upside, owing to a gradual recovery in mobility as the pandemic re- strictionscontinuetobeeased,thiswasinsufficient to prevent the hard downfall in refining economics. Tankermarket —Dirty tanker rates inMay fell from the high levels seen since mid-March. Production adjustments by OPEC and participating non-OPEC countries, as well as other major producers have eased the pressure seen on demand for VLCCs. A decline in product exports amid COVID-19 lock- downs have also kept clean tanker rates subdued, with both reduced refinery runs and weak prod- uct demand limiting cargoes. Floating storage has provided some support to both dirty and clean rates, however, levels are seen to be unwinding faster-than-expected. Crude and refined products trade — Preliminary data for May shows US crude imports recovering slightly to 6.0m b/d following the arrival of long- haul volumes from the Middle East. US crude ex- portsremainedbroadlysteadyat3.2mb/d,although a considerable share was headed to floating stor- age and oversea inventories. Product exports fell sharply inMay, accelerating the decline that started inMarch,asCOVID-19disruptionsconstrictedprod- uctdemandinLatinAmerica.Afterbottomingoutat 9.7mb/d inMarch, China’s crude imports picked up in April, averaging 9.9m b/d. Preliminary customs data indicates crude imports hit a new record high of 11.3m b/d in May. Product exports from China reached a new record high of 2.08m b/d in April, although tanker tracking data points to a sharp fall in exports in the coming months. India’s crude imports dipped in April to average 4.2m b/d, im- pacted by the government-ordered lockdown over the month. India’s product imports experienced a continued decline, weighed down by similar fac- tors, averaging below1.0mb/d for the first time this year. India’s product exports edged slightly higher in April, as refiners looked to international markets to drain excessively high inventories. Commercial stock movements — Preliminary April data showed that total OECD commercial oil stocks rose by 107.7m b m-o-m to stand at 3,069m b. This is 184m b higher than the same time one year ago and 140.6m b above the latest five-year average. Within the components, crude and prod- ucts stocks rose by 58.1m b and 49.6m b m-o-m, respectively. OECD crude stocks stood at 57.9m b above the latest five-year average, while product stocks exhibited a surplus of 82.6m b compared to the latest five-year average. In terms of days of forward cover, OECD commercial stocks fell by 4.2 days m-o-m in April to stand at 80.7 days. This is 19.9 days above April 2019, and 18.6 days above the latest five-year average. Balanceofsupplyanddemand —DemandforOPEC crude in 2019 is revised down by 500,000 b/d from the previous assessment, standing at 29.4m b/d, which is 1.1m b/d lower than the 2018 level. Demand for OPEC crude in 2020 is also revised down by 700,000 b/d from the previous month, standing at 23.6m b/d, which is around 5.8m b/d lower than in the previous year. M a r k e t R e v i e w