Crude oil spot prices rose firmly in January, along with a steady rise in futures markets. Major physical crude benchmarks increased about 10% month-on-month (m-o-m) on improving market fundamentals, particularly the prospect of tighter crude supply and the declining trend in global oil stocks. The OPEC Reference Basket gained $5.21, or 10.6%, m-o-m to average $54.38/b. Crude oil futures prices extended gains in January, increasing on both sides of the Atlantic for the third consecutive month, with the ICE Brent front month up $5.10, or 10.2%, in January to average $55.32/b and NYMEX WTI gaining $5.03, or 10.7%, to average $52.10/b. Consequently, the Brent-WTI spread widened slightly by 7¢ but remained at a narrow $3.22/b on average. The futures price structure for the Brent, WTI and Dubai markets was in sustained backwardation last month, evidence that the global oil market is improving, resulting in an accelerating rebalancing process. Hedge funds and other money managers appeared positive about the oil price outlook, raising net long positons by nearly 11% in the four weeks of January.
The contraction in the global economy was revised up for 2020, after a better-than-expected actual performance by key economies in 2H20. As a result, the global economy now shows a decline of 3.9% y-o-y. This compares with the previous month’s forecast of -4.1%. Additional stimulus measures in the US and an accelerating recovery in Asian economies are expected to lift the 2021 forecast to 4.8%, compared to the previous month’s forecast of 4.4%. The US officially reported a contraction of 3.5% for 2020. US economic growth in 2021 is now revised up to 4.2%, from the 3.4% expected in last month’s report. The Euro-zone’s GDP growth forecast for 2020 was also revised up by 0.4 pp to -6.8%, while the 2021 growth forecast was lifted to 4.1% from 3.7%. Japan’s economic forecast remained at -5.2% for 2020 and was lifted by 0.1 pp to 2.9% for 2021. China’s economic growth was officially reported at 2.3% for 2020 and the forecast for 2021 was lifted to 7.4% from 6.9% in 2021. The forecast for India was revised up to -8.2% from -9.0% for 2020 and to 7.5% from 6.8% for 2021. Brazil’s 2020 forecast was revised up to -4.9% from -5.2% and to 2.9% from 2.4% for 2021. Russia’s economic growth forecast in 2020 was officially reported at -3.1%, while the growth forecast for 2021 was improved from 2.9% to 3.0%.
The world oil demand contraction estimate for 2020 was little changed, lower by just 0.03 mb/d compared to the last month’s report. Better-than-expected oil demand data from India in 4Q20 was largely offset by figures showing weaker-than-expected consumption in OECD Americas. Global oil demand is estimated to have declined by 9.7 mb/d in 2020 to average 90.3 mb/d. For 2021, oil demand is now anticipated to increase by 5.8 mb/d, revised down by around 0.1 mb/d from last month’s projection, to average 96.1 mb/d. Revisions are concentrated in the OECD region. Extended lockdowns and the re-introduction of partial lockdowns in a number of countries has resulted in downward revisions to 1H21 projections. At the same time, positive developments on the economic front, supported by massive stimulus programmes, are expected to encourage demand in various sectors in 2H21.
Non-OPEC liquids production in 2020 is estimated to average 62.7 mb/d, representing a contraction of 2.5 mb/d, y-o-y. This is down marginally from the previous report, on the back of several upward and downward revisions in the production of various countries in 4Q20. The contraction in 2020 is driven mainly by Russia, the US, Canada, Kazakhstan, Colombia, Malaysia, the UK and Azerbaijan, while oil production increases are expected mainly in Norway, Brazil, China and Guyana. The forecast for non-OPEC supply growth in 2021 has been revised down by about 0.2 mb/d to show an increase of 0.7 mb/d, to average 63.3 mb/d. Supply from the US and Other Asia has been revised lower, whereas supply from Canada has been adjusted higher. US supply is expected to be 0.2 mb/d lower in 2021 from last month’s assessment, to increase by about 0.2 mb/d to average 17.8 mb/d. The key contributors to non-OPEC supply growth in 2021 are expected to be Canada, Brazil, the US, Norway, Ecuador, Qatar and Guyana, while declines are seen coming from Russia, the Sudans, Malaysia and the UK. OPEC NGLs are forecast to grow by about 0.1 mb/d y-o-y in 2021 to average 5.2 mb/d, following an estimated contraction of 0.1 mb/d in 2020. OPEC crude oil production in January increased by 0.18 mb/d m-o-m to average 25.50 mb/d, according to secondary sources.
Refinery margins improved globally in January, with complex configurations benefitting the most, backed by an improved performance at the top of the barrel. On the US Gulf Coast, the positive impact of holiday season demand sustained transport fuel markets over the month, despite strong refinery runs and rising product inventories. Refining economics witnessed the most limited gains in Europe relative to the other regions due to subdued product drawdowns, seasonal weakness and strict lockdown measures. Meanwhile, in Asia, robust performance at the light end of the barrel filtered through gasoline markets, offsetting the poor performance registered across the middle and bottom sections of the barrel.
Dirty tanker rates remained low in January, reportedly below operational costs in some cases, although rates from West Africa picked up. A host of factors have weighed on freight rates, including the lingering impacts of the COVID-19 pandemic on oil consumption, reduced supplies on the market, ample onshore inventory and long tonnage lists. The backwardated market structure also provides little incentive to hold inventories in floating storage, even at current low rates. Meanwhile, clean tanker rates improved, supported by activities West of Suez, but are still caught up in general malaise. From the current vantage point, the outlook for freight rates remains lacklustre, certainly in 1H21 but potentially into 2022.
Preliminary data shows US crude imports averaged 5.9 mb/d in January, the highest figure since July 2020, following a sharp increase in inflows from Canada. US crude exports were steady at close to 3.1 mb/d, as renewed outflows to Korea offset lower China-bound volumes. In Japan, crude imports averaged 2.5 mb/d in 2020, the lowest annual average since at least 1980. Japan’s product imports in 2020 averaged 0.9 mb/d, representing a 3% increase y-o-y. Meanwhile, China’s crude imports hit a three-year low in December, averaging 9.1 mb/d. The decline came as independents were largely absent from the market and a backlog of ships waited offshore to be cleared. Early indications expect crude oil imports to rebound in January and February, as independents make use of a fresh round of import quotas. China set a new global record high for crude imports in 2020, averaging 10.9 mb/d, representing a 0.7 mb/d gain y-o-y. India’s crude imports continued to see a healthy m-o-m increase in December, averaging 4.8 mb/d, the first y-o-y gain in eight months and the country’s second-highest on record. In annual terms, India’s crude imports averaged 4.0 mb/d in 2020, a decline of almost 11% y-o-y, representing a four-year low. India’s product imports averaged above 1.0 mb/d for the first time on record, while exports declined for the second year in a row, down 11% y-o-y.
Preliminary data for December shows total OECD commercial oil stocks were down by 39.3 mb, m-o-m.
At 3,068 mb, inventories are 179 mb higher than year-ago levels and 143 mb above the five-year average (2015-2019). Within components, crude and product stocks declined, m-o-m, by 24.2 mb and 15.1 mb, respectively. At 1,528 mb, OECD crude stocks are 110 mb higher than in December 2019 and 81 mb above the five-year average (2015-2019). Total product inventories stood at 1,540 mb in December, 69 mb above the same month a year ago and 62 mb higher than the five-year average (2015-2019). In terms of days of forward cover, OECD commercial stocks fell by 1.0 days m-o-m in December to stand at 70.8 days. This is 7.2 days above the December 2019 level and 8.6 days above the five-year average (2015-2019).
Demand for OPEC crude in 2020 was revised up by 0.3 mb/d from the previous report to stand at 22.5 mb/d, around 7.1 mb/d lower than in 2019. Demand for OPEC crude in 2021 was also revised up by 0.3 mb/d from the previous month to stand at 27.5 mb/d, around 5.0 mb/d higher than in the previous year.