OPEC revises oil demand growth down

Crude oil price movements Spot crude oil prices fell in April after three consecutive months of increases. OPEC’s benchmark basket fell $7.84, or 6.9%, to $105.64/bbl. Crude futures prices declined in April amid high market volatility, fueled by continued uncertainty about the market outlook. First-month ICE Brent fell $6.54, or 5.8%, in April to an average of $105.92/bbl and NYMEX WTI fell $6.62, or 6, 1%, to reach an average of $101.64/bbl. As a result, the Brent/WTI futures spread widened by 8¢ to average $4.28/bbl. The market structure of the three major crude benchmarks – ICE Brent, NYMEX WTI and DME Oman – softened considerably, but remained behind. Hedge funds and other fund managers maintained their net long positions in WTI and Brent roughly after the strong sell-off in the previous month.

Mondial economy
Global economic growth in 2022 is revised down to 3.5% from 3.9% in last month’s assessment, after growing 5.8% in 2021. US GDP growth for 2022 is revised to down to 3.2% from 3.8%, after growth was reported at 5.7% for 2021. Eurozone economic growth for 2022 is revised to 3.1% from 3.5%, after growth of 5.4% in 2021. Japan’s economic growth for 2022 is revised to 1.8% from 1.9%, after growth of 1.7% in 2021. China’s growth in 2022 is revised down to 5.1% from 5.3%, after growing 8.1% in 2021. India’s GDP growth in 2022 has been revised down to 7.1% from 7, 2%, after 2021 growth of 8.1%. Brazil’s economic growth forecast for 2022 is revised down from 1.2% to 0.7%, after growing 4.6% in 2021. For Russia, GDP growth forecast for 2022 are revised down to show a 6% contraction from a 2% contraction. expected in last month’s assessment, which follows forecast growth of 4.7% in 2021. The US, UK, Japan and Eurozone require close monitoring.

World oil demand
Global oil demand growth in 2021 remains broadly unchanged from the previous month’s estimate of 5.7mb/d. Global oil demand growth in 2022 is expected to increase by 3.4 mb/d year-on-year, representing a downward revision of 0.3 mb/d from last month’s report to 1.8 mb/d in the OECD and 1.6 mb/d in non-OECD countries. Oil demand growth in 2Q22 is expected to be slower at 2.8mb/d, compared to 5.2mb/d in 1Q22. Demand in 2022 is expected to be impacted by ongoing geopolitical developments in Eastern Europe, as well as restrictions related to the COVID-19 pandemic.

world oil supply
Non-OPEC liquids supply growth in 2021 is broadly unchanged at around 0.6mb/d. Total liquids production in the United States is estimated to have increased by 0.15 mb/d year-on-year. Non-OPEC supply growth for 2022 is revised down from 0.3mb/d year-on-year to 2.4mb/d. Russian liquids production for 2022 is revised down by 0.36 mb/d. The US liquids supply growth forecast for 2022 is broadly unchanged at 1.29 mb/d. The main drivers of liquids supply growth for the year are expected to be the United States, 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. OPEC-13 crude oil production in April increased by 153 tb/d month-on-month, to an average of 28.65 mb/d, according to available secondary sources.

Product markets and refining operations
Refinery margins at all major trading centers continued to climb in April, amid continued tightening of global product balances and lower crude prices. Favorable momentum on the product demand side, as the overall negative impact of Covid-19 further wanes globally, has bolstered fuel markets in general, including that of jet fuel, despite some mobility restrictions in a few Asian countries. Middle distillates were the main contributor to the margin over the month, while their margin gap widened further compared to that of gasoline. Going forward, refinery inputs are expected to increase, which could provide partial relief from global product shortages and possibly lower product prices.

Tanker market
Suezmax and Aframax fares continued to outperform those of the VLCC class, with gains of 61% and 28% mom. The Suezmax market was supported by a strong market in the Atlantic basin while Aframax benefited from the support of the Eastern and Western markets. After a sluggish start to the year, VLCC rates finally recovered by 24%. However, the gains were short-lived and dissipated at the end of the month amid abundant availability. Own rates continued to perform well, gaining another 15%. The market was supported by strength in the East and increased demand for tankers West of Suez amid preparations ahead of the Northern Hemisphere driving season.

Trade in crude and refined products
Preliminary data shows U.S. crude imports fell to an 11-month low of 5.9mb/d in April, while exports averaged 3.4mb/d for a 5% gain month-on-month. US commodity exports strengthened for the seventh consecutive month, averaging 6.4 mb/d, supported by strong flows to Latin America and growing flows to Europe. In March, China’s crude imports averaged 10.1mb/d, recovering from the weak performance of the previous month. Newly released customs data shows China’s crude imports rose to 10.5mb/d in April, despite expectations that reduced demand due to COVID-19 lockdowns would weigh on imports. China’s commodity imports fell 8%, while commodity exports rebounded, amid surprisingly strong diesel outflows. With domestic demand affected by the shutdowns, product outflows from China are expected to be higher than expected in April, especially for jet fuel. India’s crude imports fell in March, but remained close to the strong performance seen in the previous four months, averaging 4.5mb/d for the month. Commodity exports surged by 26%, or around 0.3mb/d, to an average of 1.7mb/d in March, the highest level since September 2013, as Europe was looking for alternatives to the flows of Russian petroleum products. Japan’s crude imports have risen steadily since the start of the year, averaging 2.9mb/d in March, amid strong demand.

Movements of commercial stocks
Preliminary data from March showed that total OECD commercial oil stocks increased by 10.1mb. At 2,621 mb, inventories were 298 mb lower than the same period a year ago, 304 mb lower than the last five-year average and 293 mb lower than the 2015-2019 average. Within components, crude inventories increased by 12.9 mb, while product inventories fell by 2.8 mb. At 1,265mb, OECD crude inventories were 189mb below the last five-year average and 198mb below the 2015-2019 average. Stocks of OECD products stood at 1,356 mb, a deficit of 115 mb compared to the last five-year average and 95 mb below the 2015-2019 average. In terms of days of futures coverage, OECD trading stocks fell 0.3 days in March to 57.4 days. This represents 8.8 days less than March 2021 levels, 8.7 days less than the last five-year average and 5.0 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 28.2mb/d, or around 5.0mb /d more than in 2020. OPEC crude demand in 2022 has been revised up by 0.1 mb/d from the previous month to 29.0 mb/d, or about 0.8 mb/d more than in 2021.
Source: OPEC

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Felix J. Dixon