OPEC keeps oil demand growth estimate for 2022, but warns it is being assessed
Crude Oil Price Movements
Spot crude oil prices rose sharply in February from the previous month, supported by strong physical crude market fundamentals, allaying fears over COVID-19 and an escalating geopolitical conflict in Eastern Europe that raised concerns about a near-term disruption in oil supply leading to a rally in oil futures markets. OPEC’s benchmark basket rose $8.81, or 10.3%, to $94.22/bbl. Crude oil futures rose on both sides of the Atlantic with ICE Brent’s first month up $8.53, or 10.0%, at $94.10/bbl on average and the NYMEX WTI up $8.65, or 10.4%, to average $91.63/bbl. As a result, the Brent-WTI futures spread narrowed by 12¢ to an average of $2.47/bbl. The market structure of all three crude benchmarks – ICE Brent, NYMEX WTI and DME Oman – shifted to a deeper pullback as investors priced in a potential supply disruption. Strong demand in the spot market supported market structure. Hedge funds and other fund managers raised their net long positions in anticipation of higher oil prices.
The conflict in Eastern Europe has increased the risk of downside performance of the global economy in 2022. So far, and in addition to the ongoing pandemic, the conflict has brought about a number of key issues, including rising commodity prices, inflation. The effects of the conflict, in particular the impact of rising inflation, if sustained, will lower consumption and investment to varying degrees. In addition, the financial conditions of different asset classes, such as currency markets, equities and an ongoing revaluation of debt are impacted. It is clear that this will impact economic activities in 2022, but to what extent exactly remains to be seen. Given the complexity of the situation, the rapid developments and the fluidity of the market, with so far limited data to understand the profound consequences of this conflict, the projections change almost daily, which makes it difficult to determine numbers. , with a reasonable degree of certainty. However, with more data and therefore a deeper understanding of the events unfolding, over the coming weeks, the global GDP growth forecast for 2022 remains underestimated at 4.2%, and will be reviewed and adjusted, when there will be more clarity about the future. – considerable impact of the geopolitical turmoil. Likewise, all figures for the overall economic forecast for 2022 remain under evaluation.
World oil demand
Global oil demand growth in 2021 is revised upward by 0.05 mb/d, reflecting actual data across all regions, to now stand at 5.7 mb/d. The 4Q21 figure for the whole OECD region is revised upwards, due to the better performance. OECD in 2021 grew by 2.7 mb/d, while non-OECD showed growth of 3.1 mb/d. Given the developments mentioned above and the extremely high uncertainty surrounding global macroeconomic performance, the global oil demand growth forecast for 2022 remains underestimated at 4.2 mb/d, with a forecast of OECD at 1.9 mb/d and a non-OECD forecast at 2.3 mb/d. However, this forecast is subject to change in the coming weeks, when there will be more clarity on the far-reaching impact of the geopolitical turmoil.
world oil supply
Non-OPEC liquids supply growth in 2021 remained broadly unchanged from last month’s assessment at around 0.6mb/d year-on-year. Total liquids production in the United States increased by 0.15 mb/d, year-on-year. 4Q21 oil supply is estimated to have declined in Canada and Australia, while there were some minor upward revisions in other countries. The oil supply estimate for 2021 mainly forecasts growth in Canada, Russia, the United States and China, while production is expected to decline in the United Kingdom, Brazil, Colombia and Indonesia. The non-OPEC supply forecast for 2022 remains at 3.0 mb/d, year-on-year. This forecast is currently being evaluated and will be reviewed and adjusted in the coming weeks, if deemed necessary. The main drivers of liquids supply growth are expected to be the United States and Russia, followed by Canada, Brazil, Kazakhstan, Guyana and Norway. OPEC NGLs are expected to increase by 0.1 mb/d in 2021 and 2022 to average 5.1 mb/d and 5.3 mb/d respectively. In February, OPEC crude oil production increased by 0.44 mb/d per month, to an average of 28.47 mb/d, according to available secondary sources.
Product markets and refining operations
In February, refinery margins across all major trading hubs improved, primarily reflecting fuel supply dynamics in an already increasingly tight global product balance. Most product prices in all regions soared, which contributed to higher product crack spreads, in response to a contraction in product production due to maintenance, concerns about disruptions due to geopolitical developments and rising crude prices. In the immediate and near term, refinery inputs are expected to decline further, which could exacerbate global product shortages and drive up product prices.
The dirty tanker market remained at subdued levels for much of February, although volatility accelerated towards the end of the month as geopolitical developments intervened. In monthly terms, VLCCs remained anchored at historically low levels, as they have been since mid-2020. Suezmax and Aframax rates performed better and were slightly higher than the previous year, registering mum improvement. The clean rates were stable in the east but increased in the Atlantic basin. The volatility seen at the end of the month will become more evident in the March data, with upward pressure particularly concentrated on the Aframax and Suezmax classes.
Trade in crude and refined products
Preliminary data shows U.S. crude imports fell 5% in February, mom, after three months of gains. U.S. crude exports rose from low levels the previous month, rising 16%, Mom. Chinese crude imports averaged 10.5mb/d in January, with flows supported by new import quotas but capped by limited refining cycles during the Beijing Olympics and Lunar New Year holidays . India’s crude imports averaged 4.5mb/d in January, down about 3% from the previous month’s high. Crude imports are expected to rise in February as the economy gains momentum and refiners ramp up cycles. Japan’s crude oil imports declined in January from the multi-year high seen the previous month. Japan’s commodity exports in January were the highest since March 2020, with outflows of gasoline at a multi-year high and diesel at the highest since March 2020. Recent developments in Eastern Europe have created dislocations significant, which is likely to be visible in March data, adding considerable uncertainty to crude and product trade flows.
Movements of commercial stocks
Preliminary data for January sees total OECD commercial oil inventories down, mom, by 3.1mb. At 2,677mb, OECD commercial oil stocks were 359mb lower than the same period a year ago, 280mb lower than the last five-year average and 250mb lower than the 2015-2019 average. Within the components, inventories of OECD commercial crude fell, mom, by 8.7 mb, while inventories of OECD commercial products increased, mom, by 5.5 mb. At 1,294 mb, OECD commercial crude inventories were 158 mb below the last five-year average and 139 mb below the 2015-2019 average. Stocks of OECD commercial products stood at 1,383mb, a shortfall of 142mb from the last five-year average and were 112mb below the 2015-2019 average. In terms of days of futures coverage, OECD trading stocks fell, mom, 0.7 days in January to 59.3 days. This represents 11.6 days less than January 2021 levels, 6.2 days less than the last five-year average and 2.8 days less than the 2015-2019 average.
Balance of supply and demand
OPEC crude demand in 2021 has been revised up by 0.1mb/d from the previous month’s estimate to 28.0mb/d, or around 5.0mb /d higher than in 2020. On the other hand, OPEC crude demand in 2022 has also been revised upwards by 0.1 mb/d from the previous month’s estimate to stand at 29.0 mb/d, about 1.0 mb/d more than in 2021.