The OPEC Reference Basket (ORB) value declined by $2.45, or 3.9%, month-on-month (m-o-m) in October to settle at $59.91/b. In October, ICE Brent was on average $2.65, or 4.3%, m-o-m lower at $59.63/b, and NYMEX WTI fell m-o-m by $2.96, or 5.2%, to average $54.01/b. Year-to-date (y-t-d), ICE Brent was $9.37, or 12.7%, lower at $64.21/b, while the NYMEX WTI declined by $10.46, or 15.6%, to $56.76/b, compared with the same period a year earlier. The backwardation price structures of both ICE Brent and DME Oman flattened in October, mainly in prompt forward months, while the NYMEX WTI market structure was slightly in contango for most of October. Hedge funds and other money managers were more concerned about the outlook of crude oil prices in October than they had been in the previous month.
The global economic growth forecast remains at 3.0% for both 2019 and 2020. Growth forecasts for all major regions remain unchanged for 2019. For 2020 a small downward revision is expected for the Euro-zone and Brazil’s forecast was revised up slightly. Euro-zone growth remains at 1.2% for 2019 but was revised down to 1.0% for 2020. Japan’s growth forecast is unchanged at 0.9% for 2019 and 0.3% for 2020. China and India’s growth forecast were also unchanged, standing at 6.2% and 6.1% for 2019 and 5.9% and 6.7% for 2020, respectively. Brazil’s 2019 growth forecast remains unchanged at 0.8%, while the 2020 forecast was revised up slightly to 1.6%. Russia’s forecast remains at 1.0% for 2019 and 1.2% for 2020. Risk remains skewed toward the downside, especially with underlying trade-related issues and associated uncertainties.
In 2019, global oil demand growth was unchanged, despite some upward revisions to the Middle East in 3Q19 and 4Q19 offset by downward revision in OECD Americas, mainly to reflect weaker-than-expected demand in OECD Americas during 2Q19 and 3Q19. Global oil demand growth is estimated at 0.98 mb/d. In 2020, oil demand growth is forecast at 1.08 mb/d, also unchanged from the last month’s report. Other Asia and China are assumed to be the largest contributors to oil demand growth with a combined addition of 0.68 mb/d. The OECD is projected to increase by 0.07 mb/d. Non-OECD is assumed to be the largest contributor to oil demand growth, rising by 1.01 mb/d.
Non-OPEC oil supply growth for 2019 remains at 1.82 mb/d y-o-y, as higher-than-expected oil production in Canada, the UK and Kazakhstan, was offset by downward adjusted production data for the US, and Indonesia, among others. The US, Brazil, China, the UK, Australia and Canada are the key drivers of growth in 2019 while Mexico and Norway are projected to see the largest declines. Non-OPEC oil supply growth in 2020 was revised down by 36 tb/d from last month’s assessment and is now forecast to grow by 2.17 mb/d, mainly due to the US, which was revised down by 33 tb/d to now show growth of 1.5 mb/d for the year. The US, Brazil, Norway, Russia, Canada, Kazakhstan and Australia are expected to be the main growth drivers for next year, while Mexico, Indonesia Egypt the UK, Colombia and Egypt are forecast to see the largest declines. OPEC NGLs production in 2019 was revised down by 11 tb/d and is now expected to grow by 0.04 mb/d. For 2020, OPEC NGLs growth is forecast at 0.03 mb/d y-o-y. In October, OPEC crude oil production increased by 943 tb/d to average 29.65 mb/d, according to secondary sources.
Product markets in October saw a mixed performance. In the Atlantic Basin, markets strengthened as heavy refinery maintenance works led to restricted product output, supporting product prices as well as refining economics. Another supporting factor this month was the recovery in naphtha markets in the US and Europe, as crack spreads for the same product trended upward for the second consecutive month, re-entering positive territory in the USGC. Meanwhile, in Asia, robust y-o-y growth in product output amid refining capacity additions in China has contributed to a rise in product inventory levels in Singapore, which weighed on Asian product markets. The sanctions applied last month on some Chinese ships and the resulting hike in freight rates led to a severe weakening in fuel oil markets in all regions, with the largest impact being felt in Asia.
A host of factors in the tanker market in October pushed rates to record highs on all major routes. The market had been expecting a seasonal pickup in demand and some tightness on the tanker availability side, as tankers were scheduled to be taken out of the market to install scrubbers ahead of IMO 2020. However, geopolitical developments, such as the announcement of sanctions on two subsidiaries of one of the largest shippers in the world, China’s Cosco, led to panic fixing and rates surged. While rates quickly fell back, average dirty spot freight rates in October were more than doubled m-o-m and were sharply higher y-o-y. Clean rates were also pulled higher, as some clean ships were repurposed to carry dirty freight, resulting in a lower, but still considerable, increase on average in clean spot freight rates.
Preliminary data for September showed that total OECD commercial oil stocks fell by 23.5 mb m-o-m to stand at 2,945 mb, which is 87.7 mb higher than the same time one year ago, and 28.2 mb above the latest five-year average. Within the components, crude stocks fell by 13.8 mb m-o-m to stand at 12.5 mb above the latest five-year average, while product stocks also decreased by 9.7 mb m-o-m to stand at 15.7 mb above the latest five-year average. In terms of days of forward cover, OECD commercial stocks fell by 0.7 days m-o-m in September to stand at 60.8 days, which is 1.6 days above the same period in 2018, but 0.8 days below the latest five-year average.
Demand for OPEC crude in 2019 was unchanged from the previous report to stand at 30.7 mb/d, which is 0.9 mb/d lower than the 2018 level. Demand for OPEC crude in 2020 also remained unchanged from the previous report to stand at 29.6 mb/d, which is around 1.1 mb/d lower than the 2019 level.