Spot crude prices settled significantly lower in September, after four consecutive months of gains. The OPEC Reference Basket (ORB) fell by $3.65, or 8.1% m-o-m, to $41.54/b, while the year-to-date averaged $40.62/b. Crude oil futures prices on both sides of the Atlantic declined during September, for the first time since April. ICE Brent was down 7.0% m-o-m, averaging at $41.87/b, while NYMEX WTI dropped 6.5% m-o-m, settling at $39.63/b. The Brent-WTI spread continued narrow at just over $2/b. All three futures market structures remained in contango during September, with ICE Brent and NYMEX WTI futures markets moving into a deeper contango, while the contango in DME Oman eased slightly. Hedge funds and other money managers were less bullish on the oil price outlook in September, and were net sellers of crude in both Brent and WTI.
The global economic growth forecast remains at minus 4.1% for 2020, while for 2021 it is revised downward to 4.6%, from 4.7% in last month’s assessment. In 2020, the US economic growth forecast is revised up to minus 4.2% y-o-y, followed by a downwardly revised growth of 3.9% in 2021. The Euro-zone’s economic growth forecast in 2020 remains at minus 7.7%, followed by downwardly revised growth of 4.2% in 2021. Japan economic growth is revised down for both 2020 and 2021, and is now forecast to contract by 5.7% in 2020, then recover to growth of 2.8% in 2021. China’s economic growth in 2020 is revised up to 2.0%, followed by growth of 6.9% in 2021. India’s economic growth forecast in 2020 is revised down further to minus 7.5%, followed by growth of 6.8% in 2021. Brazil’s economic growth in 2020 is revised up to minus 6.2%, before rebounding to growth of 2.4% in 2021. Russia’s economic growth forecast in 2020 remains unchanged, at minus 4.9%, but is expected to recover in 2021 to grow by 2.9%.
In 2020, world oil demand is estimated to decline by 9.5 mb/d y-o-y, relatively unchanged from last month’s assessment, reaching a level of 90.3 mb/d. In the OECD, demand growth is revised slightly lower by around 0.06 mb/d in 2020. This downward revision accounts for lower expectations for transportation fuel consumption in the US and parts of Europe in 2H20 following a weak summer driving season, which has more than offset a less-than-expected decline in 1H20 data, due to steady petrochemical feedstock demand in the US and increased heating fuel restocking in Europe. In the non-OECD, oil demand in 2020 was adjusted slightly higher, by around 0.05 mb/d m-o-m, due to better-than-expected demand from China. In 2021, world oil demand is revised lower by 0.08 mb/d, compared to last month’s assessment, now forecasting a growth of 6.5 mb/d, reaching a level of 96.8 mb/d. This downward revision mainly reflects lower economic growth outlook for both the OECD and non-OECD regions, compared to last month’s forecast.
The non-OPEC liquids supply forecast in 2020 is revised up by 0.31 mb/d from the previous month’s assessment, mostly due to a higher-than-expected recovery in US liquids production. Non-OPEC liquids supply is now estimated to contract by 2.4 mb/d y-o-y, to average 62.8 mb/d. Oil supply in 2020 is forecast to decline mainly in Russia with 1.1 mb/d, US with 0.7 mb/d, Canada, Kazakhstan, Colombia, Malaysia, and Azerbaijan, while it is projected to grow in Norway, Brazil, China, Guyana and Australia. The non-OPEC liquids production forecast for 2021 is revised down by 0.11 mb/d, mainly for the US, and is now expected to grow by 0.9 mb/d, to average 63.67 mb/d. The main drivers for supply growth are expected to be the US with 0.3 mb/d, Canada, Brazil and Norway. The majority of this growth represents a recovery of production from 2020, rather than new projects. OPEC NGLs in 2020 are estimated to decline by 0.1 mb/d y-o-y, and forecast to grow by 0.1 mb/d y-o-y in 2021, to average 5.2 mb/d. OPEC crude oil production in September decreased by 0.05 mb/d, m-o-m, to average 24.11 mb/d, according to secondary sources.
In September, refining margins showed mixed results. In the Atlantic Basin, product markets benefited from refinery run cuts, despite weakness coming from the middle of the barrel due to high gasoil availability, amid more stringent lockdown measures, as COVID-19 infection rates continued rising. In the US, the landfall of Hurricane Laura in early September affected several refinery operations, while maintenance-related shutdowns in Europe led to a relatively tighter gasoline market in both regions. In Asia, growing product surplus continued to pressure product markets, outweighing all gains from healthy gasoline demand in India, but refinery intakes within the region remained strong.
Dirty tanker rates remained weak in September, as tonnage demand was weak and the unwinding of floating storage increased availability. After three spectacular quarters in 2020, ship owners are expecting a slow fourth quarter for tanker demand and an uncertain outlook for the coming year. Clean tanker rates have seen some pick up as the easing of COVID-19 restrictions has revived some product trade flows.
Preliminary data shows that US crude imports continued to slide, averaging 5.2 mb/d in September, the lowest since 1992. US crude exports in September rebounded after falling the month before to average 3 mb/d. Japan’s crude imports showed a recovery, averaging 2.4 mb/d in August, up from a low of 1.9 mb/d in June 2020, but well below the recent 3.1 mb/d peak seen in March. Product imports also remained relatively healthy in August, up 11% m-o-m. Naphtha inflows increased, as refiners prefer imports over increasing refinery runs amid high distillate stocks. China’s crude imports have come back down from the higher levels seen in June and July, averaging 11.2 mb/d in August. Product imports improved, but remained below the inflated levels seen in May and June, averaging 1.3 mb/d in August. Product exports returned above 1 mb/d in August, with gasoil and fuel oil outflows increasing from the low levels seen the month before. Following seven months of consecutive declines, India’s crude imports increased in August, averaging 3.6 mb/d, as refiners returned to the market after drawing down high inventories in the previous two months. However, refinery runs and product demand remain weak, amid continued lockdown measures.
Preliminary August data showed that total OECD commercial oil stocks fell by 20.7 mb, m-o-m. At 3,204 mb, they were 226.8 mb higher than the same time one year ago and 219.3 mb above the latest five-year average. Within the components, crude stocks declined by 30.2 mb m-o-m, while product stocks increased by 9.4 mb, m-o-m. OECD crude stocks stood at 78.1 mb above the latest five-year average, while product stocks exhibited a surplus of 141.3 mb. In terms of days of forward cover, OECD commercial stocks fell by 1.3 days, m-o-m, in August to stand at 71.9 days. This was 9.6 days above the August 2019 level, and 9.1 days above the latest five-year average.
Demand for OPEC crude in 2020 is revised down by 0.3 mb/d from the previous month’s assessment to stand at 22.4 mb/d, around 7.0 mb/d lower than in 2019. Similarly, demand for OPEC crude in 2021 is revised down by 0.2 mb/d from the previous month’s assessment to stand at 27.9 mb/d, around 5.6 mb/d higher than in 2020.