OB04_052020

108 OPEC bulletin 4–5/20 MOMR … oil market highlights May 2020 The feature article and oil market highlights are taken from OPEC’s Monthly Oil Market Report (MOMR) for May 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 re- corded a second sharp monthly drop in April, amid an increasing oil surplus in the spot market. The OPEC Reference Basket (ORB) value plummeted by $16.26, or 48.0 per cent, m-o-m, to $17.66/b, the lowest monthly level since December 2001. With regardtocrudefutures,ICEBrentdeclinedby$7.10, or 21 per cent, to average $26.63/b, while NYMEX WTI fell by $13.75, or 45.2 per cent, to average $16.70/b. The contango structure of the forward curves of all crude futures benchmarks steepened further, on further worsening of global oil market fundamentals and a rapid increase in global oil inventories. Money managers firmly raised their combined futures and options net long positions in April in both ICE Brent and NYMEX WTI contracts. World economy — The world economy is forecast to face a recession in 2020, declining by 3.4 per cent, following global economic growth of 2.9 per cent in the previous year. Within the OECD, 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 is expected in the Euro-zone, where economic activity is forecast to fall by 8.0 per cent 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, recovering from a sharp contraction in 1Q20, and following growth of 6.1 per cent in 2019. India is forecast to decline by 0.2 per cent, a sharp slowdown from already weakening growth of 5.3 per cent in 2019. Brazil’s economy is fore- cast 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, af- ter 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 — For 2019, world oil demand growth is kept broadly unchanged compared to last month’s assessment, estimated to have grown by 830,000 b/d, y-o-y, to average 98.72m b/d. In 2020, world oil demand growth is adjusted lower by 2.23m b/d and is now forecast to drop by 9.07m b/d. However, the worst contraction in major oil demand centres around the world is expected to take place in the 2Q20, mostly in OECD Americas and Europe, with transportation and industrial fu- els affected the most. As such, OECD oil demand is now revised lower by 1.20mb/dwhile non-OECDoil demand growth was adjusted down by 1.03m b/d, for total oil demand to reach 90.59m b/d. Indeed, demand contraction in 2020 can be mitigated with sooner than expected easing of government COVID-19 relatedmeasures, and faster response of economicgrowthtotheimplementedextraordinary stimulus packages. World oil supply — The non-OPEC oil supply growth estimate in 2019 is now revised up slightly by 40,000 b/d from the previous month’s assess- ment, due to an upward revision in Australia’s production data, and is estimated to have grown by 2.02m b/d. For 2020, non-OPEC oil supply is revised down further by almost 2.0m b/d from the previous projection, and is now forecast to decline by 3.5m b/d. The main revisions of the month are based on production shut-ins or curtail- ment plans announced by oil companies — includ- ing the majors — particularly in North America. Globally, not including the countries participating in the ‘Declaration of Cooperation’ (DoC) and as of May 6, 2020, around 3.6m b/d of production cuts have been announced, so far, in response to the lack of demand, low oil prices, excess supply and limited storage capacity. The 2020 oil sup- ply growth forecast for the US is revised down by 1.3m b/d to now show a decline of 1.4m b/d y-o-y. Other large downward revisions are undertaken for Canada and Brazil by 300,000 b/d and 100,000 b/d, respectively. Oil supply in 2020 is forecast to show growth only in Norway, Brazil, Guyana and Australia. OPEC NGLs production in 2019 is estimated to have grown by 40,000 b/d to aver- age 4.79m b/d and for 2020 is forecast to grow by 40,000 b/d to average 4.83m b/d. In April, OPEC crude oil production increased by 1.80m b/d m-o-m to average 30.41m b/d, according to secondary sources Product markets and refining operations — Refinery margins in the Atlantic Basin rebounded in April. Deeper refinery intake cuts, as well as low feedstock prices helped offset weak demand. In addition, the relaxation of confinement measures in the US and Europe amid the onset of the driv- ing season, provided much-needed stimulus to the top of the barrel. In Asia, however, stronger prod- uct availability, as refineries increased processing rates,outpacedproductinventorydrawdownsamid a lack of demand from overseas, weighed on the regional product market. Tanker market — April was a stellar month for the tanker market with both dirty and clean rates see- ing spikes during the month. Dirty freight rates peaked early in April and then trended lower, al- though remaining at relatively high levels. Rates weresupportedbyasurgeintankerdemand,driven by low crude prices and a need to push out excess supplies amid concerns about the availability of onshore storage capacity. Meanwhile, clean tank- er rates jumped to historic highs in the middle of April, as refiners and traders looked to boosting product exports and turned to floating storage. However, rates returned to more typical levels by the end of the month. The expected voluntary and involuntary production reductions are expected to weigh on tanker demand in the coming months, although increased floating storage will provided offsetting support. Crude and refined products trade — According to preliminary data, US crude imports in April fell to 5.4m b/d — the lowest since 1992 — while the country’s crude exports averaged 3.2m b/d, down froma peak of 3.7mb/d in February 2020. InMarch, China’s crude imports averaged 9.7m b/d, falling below 10m b/d for the first time in eight months. Product exports from China surged to 1.85m b/d, the second highest level on record, led by a jump in diesel exports. India’s crude imports dipped in March to average 4.6m b/d, impacted by the gov- ernment-orderedlockdownwhichbegantowardthe end of the month. India’s product exports rose ten per cent m-o-m, supported by an increase in die- sel exports. Crude imports into Japan increased for the first time in two months, averaging 3.1m b/d in March, while product imports and exports were slightly lower. The latest official data for OECD Europe shows crude exports continuing to fall in January, reaching 2.2m b/d. Commercial stock movements — OECD commer- cial oil stocks rose by 57.7m b m-o-m in March to stand at 3,002m b. This was 125.8m b higher than the same time one year ago and 88.6m b above the latest five-year average. Within components, crude stocks surgedby 49.1mb, while product stocks rose by 8.6m b, m-o-m. In terms of days of forward cov- er, OECD commercial stocks surged by 8.9 days m- o-m in March to stand at 86.1 days. This was 25.1 days above March 2019, and 23.8 days above the latest five-year average. Preliminary data for April showed that US total commercial oil stocks surged by 81.1m b m-o-m to stand at 1,395m b. This was 136.1m b, or 10.8 per cent, above the same period a year ago, and 123.7m b, or 9.7 per cent, higher than the latest five-year average. Within compo- nents, crude stocks climbed by 47.9m b, and prod- uct stocks rose by 33.2m b m-o-m in April. Balanceofsupplyanddemand —Demand for OPEC crude in 2019 stood at 29.8m b/d, 1.2m b/d lower than the 2018 level. For 2020, and following the recent agreement reached at the extraordinary OPEC and non-OPEC Ministerial Meetings in April, demand for OPEC crude is expected at 24.3m b/d, which is 5.6m b/d lower than the 2019 level. It is worth noting that demand for OPEC crude in 2020 remained almost the same as last month’s assess- ment, both considering the voluntary adjustment volumes under the DoC framework. However, ad- ditional reductions recently announced by several OPEC member countries, above and beyond their voluntary commitments under DoC, are expected to expedite market re-balancing, and improve the demand for OPEC crude in 2020. M a r k e t R e v i e w