106 OPEC bulletin 4–5/20 MOMR … oil market highlights April 2020 The feature article and oil market highlights are taken from OPEC’s Monthly Oil Market Report (MOMR) for April 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 — Crude oil prices collapsed in March 2020, recording their deep- est monthly drop since the global financial crisis in 2008. The ramifications of the COVID-19 pan- demic were the main driving force, resulting in unprecedented worldwide oil demand shock and massive sell-offs in the global oil markets, amid a significant crude surplus. The OPEC Reference Basket (ORB) value was down by $21.61, or 38.9 per cent, m-o-m, to stand at $33.92/b, the lowest monthly value since September 2003. ICE Brent declined by $21.75, or 39.2 per cent, m-o-m, to average $33.73/b, while NYMEX WTI fell $20.09, or 39.8 per cent, to av- erage $30.45/b. The term structure of all three crude benchmarks — ICE Brent, NYMEX WTI and DME Oman —moved to a super contango inMarch, and money managers cut speculative net long positions. World economy — The world economy is forecast to face a severe recession in 2020, declining by 1.5 per cent, following global economic growth of 2.9 per cent in the previous year. Following ten- der signs of improvement at the beginning of the year, expectations for global economic growth were quickly burdened by the strong impact of the COVID-19 pandemic. Within the OECD, the US is forecast to contract by 4.1 per cent in 2020, following growth of 2.3 per cent in 2019. An even larger decline is expected in the Euro-zone, where economic activity is forecast to fall by 6.0 per cent in 2020, compared to growth of 1.2 per cent in 2019. Japan is forecast to contract by 3.9 per cent in 2020, comparing to growth of 0.7 per cent in 2019. China’s 2020 GDP is forecast to grow by 1.5 per cent, recovering from a sharp contraction in 1Q20 and following growth of 6.1 per cent in 2019. India is forecast to grow by only 2.0 per cent, a sharp slowdown from already weakening growth of 5.3 per cent in 2019. Brazil’s economy is forecast to contract by 2.4 per cent in 2020, following growth of 1.0 per cent in 2019. Russia’s economy is forecast to contract by 0.5 per cent in 2020, after growth of 1.4 per cent in 2019, not only due to COVID-19, but also because of the con- siderable decline in oil prices. As risk remains to be skewed to the downside, further revisions may be warranted going forward. Worldoildemand —World oil demand growth fore- cast for 2019 is kept unchanged at 830,000 b/d, compared with the previous month’s assessment. For 2020, the world oil demand growth forecast is revised lower by 6.9m b/d, to a historical drop of around 6.8m b/d. The contraction in the 2Q of this year is expected to be around 12m b/d, with April witnessing the worst contraction at about 20m b/d. The impact of the COVID-19 outbreak in China in 1Q20, and its negative impact on trans- portation and industrial fuels in the country, has since spread globally and is now affecting oil de- mand growth in most other countries and regions, with an unprecedented impact on global oil de- mand, transportation fuels in particular. As a re- sult, OECD oil demand is revised lower by 3.7m b/d to decline by 4.0m b/d, while non-OECD oil demand growth is adjusted lower by 3.2m b/d to contract by 2.9m b/d for the year. Considering lat- est developments, and the large uncertainties go- ing forward, downward risks remain significant, suggesting possibility of further adjustments, es- pecially in the 2Q, should new data and further developments warrant revisions. World oil supply — Non-OPEC oil supply growth in 2019 is revised down by 10,000 b/d from the previous month’s assessment and is now estimat- ed at 1.98m b/d. For 2020, non-OPEC oil supply is forecast to decline by 1.50m b/d, a downward revision of 3.26m b/d from the previous projec- tion. The impact of COVID-19, ensuing global economic recession and oil demand shock, will also lead to supply disruptions. Benchmark oil prices plunge prompted companies to respond by cutting capital expenditure to the lowest in 13 years. The 2020 oil supply growth forecast for the US was revised down by 1.05m b/d to show a decline of 150,000 b/d y-o-y. The supply growth for the ten non-OPEC countries participating in the ‘Declaration of Cooperation’ has also been ad- justed lower. Oil supply in 2020 is now forecast to show growth only in Norway, Brazil, Guyana and Australia. OPEC NGLs production in 2019 is esti- mated to have grown by 40,000 b/d to average 4.79m b/d and for 2020 will grow by 40,000 b/d to average 4.83m b/d. In March, OPEC crude oil production increased by 821,000 b/dm-o-m to av- erage 28.61mb/d, according to secondary sources. Productmarketsandrefiningoperations —Global refinery margins globally showed mixed perfor- mance duringMarch. In the US, margins weakened as strength in gasoil/diesel was offset by losses in gasoline cracks, as complex margins came close to negative territory. In Europe, product markets strengthened slightly at the middle of the barrel, supported by a fall in feedstock prices. An already relatively tight global gasoil market saw support from output cuts and continued critical industrial activities for essential services and goods amid COVID-19. However, in Asia, margins eased to- wards the end of themonth, pressured by a weaker top of the barrel, despite healthy gasoil and fuel oil crack spreads. Tanker market — The tanker market has been one of few segments of the oil industry that enjoyed positive momentum in March. A sudden surge in crude exports boosted demand for VLCCs, which pulled up Suezmax rates as well. Dirty spot freight rates declined mid-month before climbing again as the market was supported by high demand for tankers as charterers rushed to place cargoes amid a collapse in demand due to the COVID-19 pandemic. Increased options for time-chartering, including for floating storage, underscored the build-up of excess supply of crude and products in the market. For the month, dirty spot rates av- eraged 69 per cent higher m-o-m in March. Clean tanker spot freight rates rose 12 per cent m-o-m, as the need to find homes for excess product sup- plies supported the market. Trade — Crude and product trade flows have been notably affected by the COVID-19 pandemic and the uncertain outlook going forward, although there has been some lag in how the various regions have been affected. US crude exports had a strong start to the year, averaging 3.5mb/d in 1Q20, a gain of 800,000 b/d over the same quarter last year, as the US remained a net liquids exporter for the seventh-consecutive month. Meanwhile, China’s crude imports averaged 10.5m b/d over the first two months of 2020, declining from December as disruptions caused by COVID-19 led to some imports being diverted or delayed. Product trade was also affected, with imports and exports aver- aging 300,000 b/d lower in the first two months of the year compared to December. Official data showed India’s crude imports increasing slightly in February, although some estimates show a higher jump as the country took in some discounted car- goes diverted from China. India’s crude and prod- uct trade is likely to be broadly impacted in March by a government-ordered lockdown. Stock movements — OECD commercial oil stocks rose by 5.6m b, m-o-m, in February to stand at 2,945m b. This was 64.3m b higher than the same time one year ago and 24.7m b above the latest five-year average. Within components, crude stocks fell by 6.1m b, while product stocks rose by 11.7m b, m-o-m. In terms of days of forward cover, OECD commercial stocks rose by 5.0 days, m-o-m, in February to stand at 72.7 days. This was 11.5 days above the same period in 2019, and 10.3 days above the latest five-year average. Preliminary data for March showed that US total commercial oil stocks increased by 8.2m b, m- o-m, to stand at 1,922m b. This was 31.8m b, or 1.7 per cent, above the same period a year ago, and 16.2m b, or 0.8 per cent, lower than the lat- est five-year average. Within components, crude stocks rose by 25.1m b, while product stocks fell by 16.8m b, m-o-m. Balanceofsupplyanddemand —Demand for OPEC crude in 2019 stood at 29.9m b/d, 1.2m b/d lower than the 2018 level. Following the recent agree- ment reached at the extraordinary OPEC and non- OPEC Ministerial Meetings, the demand for OPEC crude in 2020 is expected at 24.5m b/d, around 5.4m b/d lower than the 2019 level, though this remains heavily subject to uncertainty surround- ing current market conditions. M a r k e t R e v i e w