Wednesday 30 / October / 2024
Muscat: There was several positive news in the market that reversed the course of crude oil from further fall, according to a new report.
“This included the hopes of moderating inflation in the US and an expected rate pause by the US Fed which may support oil demand besides China's plan for economic stimulus,” the Kuwait-based Kamco Invest said in its Oil Market Monthly Report June 2023 report.
Consistent decline in crude oil prices since the start of the year and further declines during June-2023 pushed prices to the lowest point since December-2021 by the second week of June-2023.
The declines came after several data points pointed to a slowdown in demand in the near term especially in China, the US and Euro Area,” Kamco Invest report.
The US government’s tender to purchase 3 million barrels of oil to refill its Strategic Petroleum Reserve (SPR) and an additional 12 million barrels of planned purchases for this year also supported prices of sour oil in the US. On the other hand, China is reportedly planning an economic stimulus to boost consumption.
On the demand front, the latest export figures from China pointed to a slowdown in factory output indicating a weak global demand especially emanating from developed markets due to higher inflation in US and Europe. Exports from China declined at a faster-than-expected pace of 7.5 percent year-on-year (y-o-y) during May-2023 while imports contracted by 4.5 percent. To counter this slowdown in export demand, the Chinese government announced a small cut to its seven-day reverse repo rate that was aimed at boosting domestic demand. Moreover, a summer-cooling led demand in Europe as temperatures peaked in the region was countered by ample inventories in the region. Meanwhile, prices in the physical market aimed at India took a hit after a cyclone led to force majeure at key oil and container ports on the western coast.
On the supply side, the wildfires in Canada affected light oil and natural gas production. A report from Rystad Energy said that around 0.3 mb/d or 20 percent of oil and gas production may be affected in British Columbia. On the other hand, the forecasted growth for US shale oil production was modest. The Permian basin in the US is expected to add merely 767 barrels per day next month, the slowest pace of growth in the region since February-2023, led by inflation and investor pressure on drillers to maintain fiscal discipline. Oil production by the Organisation of the Petroleum Exporting Countries (Opec) also plunged around 0.5 mb/d during May-2023 to 28.1 mb/d mainly led by steep cuts implemented by Saudi Arabia, the UAE and Kuwait that was partially offset by higher production in Nigeria.
Oil prices
Oil traded within a tight range of $70 and $80 per barrel over the last few weeks led by pressure on the demand front that was countered by supply adjustments, the Kamco Invest report said. Brent futures closed at the lowest level in 18 months on 12-June-2023 led by fears of slow demand recovery this year, in addition to ample supply and inventories. Although prices witnessed a more than 3 percent recovery on June 13 led by hopes of a rate pause and China’s stimulus plans, the market remained fragile eyeing slow economic growth in most major oil-consuming countries.
The European Central Bank (ECB), on the other hand, is expected to implement a 25bps hike on Thursday, further affecting demand from the region. The market also ignored the steep cut announced by Saudi Arabia for July-2023 as well as an extension to the existing cuts by OPEC countries. A report from Refinitiv showed Brent crude oil’s six-month backwardation has fallen to the lowest since March-2023, indicating declining market confidence in higher demand for oil as compared to supplies.
Data from Baker Hughes showed aggregate oil rig count increase modestly by 1 rig for the first time in six weeks. This confirms data from a recent government report that showed marginal growth in production in the near term. However, the latest weekly report on oil production showed US output reaching 12.4 mb/d during the week ended June 2, the highest level in three years.
World oil demand
The world oil demand growth estimate for 2022 was kept unchanged at a growth of 2.5 mb/d to an average of 99.57 mb/d during the year. However, adjustments were made at the country level for data for Q4-2022 including a small upward adjustment to demand data for the Organisation for Economic Co-operation and Development (OECD) Americas region.
For 2023, the demand growth forecast was also kept unchanged with a growth of 2.3 mb/d to an average of 101.91 mb/d during the year. However, country-level data for China, Latin America and the Middle East region witnessed an upward adjustment that was offset by a downward revision to data for OECD Europe, Other Asia and Africa. The downward adjustments reflected weak demand during 2Q-2023 led by economic challenges.
China’s economy witnessed a better-than-expected performance that led to an upward revision in the forecast. Although recent economic data from China pointed to a decline in imports (slow domestic demand) and exports (a slowdown in advanced markets), oil imports in China jumped during May-2023 by 12.2 percent y-o-y and by 17.4 percent q-o-q to 12.11 mb/d, according to government data. The increase came after refiners resumed production post-maintenance and started stockpiling crude oil, according to OilPrice.com. In addition, in its third batch of oil import quotas, the Chinese government effectively increased total volumes during 1H-2023 by 20 percent y-o-y to 194.1 million tons, according to Reuters. On the other hand, oil demand in India rose by a strong 9.7 percent y-o-y during May-2023 to reach 20.03 million tonnes, according to data from the oil ministry.
Consumption of diesel reached a record high of 8.22 million tons after increasing by 5.1% m-o-m while gasoline consumption saw double-digit growth of 16% as compared to April-2023 to reach 3.35 million tons. Crude oil demand in the US is expected to be constrained in 2Q-2023, especially for industrial fuels led by slow manufacturing activity, according to OPEC monthly report, although transportation fuel demand is expected to remain steady. For Q3-2023, demand is expected to increase led by an expected slowdown in inflation as well as peak driving season. For the OECD region, demand is expected to be supported by transportation fuels during this quarter and in Q3-2023, although overall demand is expected to decline slightly.
World oil supply
Global liquids production recorded a monthly decline for the third consecutive month during May-2023 after showing growth during the first two months of the year. According to preliminary data, global oil supply dropped by 1.02 mb/d to reach an average of 100.2 mb/d. The decline during the month was led by a fall in production in both non-Opec and Opec producers.
Non-Opec liquids production (including Opec natural gas liquids) declined by 0.6 mb/d during May-2023 to average 72.2 mb/d mainly led by a fall in production once again in Russia and Canada that more than offset higher output in Other Asia and Other Eurasia. Opec production also witnessed a decline of around 0.5 mb/d resulting in a market share of 28.0 percent.
Non-Opec liquids supply growth estimates for 2022 were kept unchanged at a growth of 1.9 mb/d to an average of 65.74 mb/d as compared to 65.76 mb/d expected in Opec’s previous forecast. The forecast for 2023 was also kept broadly unchanged at a growth of 1.43 mb/d to average at 67.17 mb/d although minor downward adjustments were made to supply forecast data for Other Asia and some other countries that were offset by revisions to data for the OECD Americas region.
