Crude oil spot prices rose in July, m-o-m, as physical market fundamentals and declining oil inventories continued to support oil prices. The OPEC Reference Basket (ORB) averaged $73.53/b in July, representing an increase of $1.64, or 2.3%, m-o-m, the highest level since October 2018. Year-to-date, the ORB was up $25.43, or 63.8%, compared with the same period last year, to average $65.27/b. Crude oil futures prices also extended gains in July, buoyed by the outlook for strong oil market fundamentals. The ICE Brent front month increased by 88¢, or 1.2%, m-o-m to average $74.29/b in July, while NYMEX WTI gained $1.08, or 1.5%, m-o-m to average $72.43/b. Consequently, the Brent/WTI futures spread narrowed further in July by 20¢ to $1.86/b, its narrowest since October 2020. The market structure of all three major oil benchmarks remained in steep backwardation in July, as the oil market outlook remained robust and the market rebalancing process continued, amid a further decline in OECD oil stocks. However, hedge funds and other money managers sharply reduced their net long positions in July, particularly in WTI, after a selloff was seen in US equity markets and concerns heightened about the rapid spread of the Delta variant.
Global economic growth forecasts for both 2021 and 2022 were revised up by 0.1 pp, and hence growth for 2021 now stands at 5.6%, while growth in 2022 is now expected at 4.2%. However, the forecast for global growth continues to be impacted by uncertainties, including the spread of COVID-19 variants and the pace of the vaccine rollout worldwide. In addition, sovereign debt levels in many regions, together with inflationary pressures and central bank responses, remain key factors that require close monitoring. After lower-than-expected 2Q21 GDP growth, US economic growth for 2021 is revised down to 6.1% from 6.4% previously, while growth for 2022 is revised up to 4.1% from 3.6%. Euro-zone economic growth in 2021 is revised up to 4.7% from 4.1%, while growth for 2022 is revised up to 3.8% from 3%. Japan’s economic growth forecast remains at 2.8% for 2021, followed by growth of 2.0% in 2022. Meanwhile, China’s economic growth forecast for 2022 is revised down to 6% from 6.3%, following growth of 8.5% in 2021, unchanged from the previous month’s assessment. India’s 2021 growth forecast is revised down to 9.3%, followed by growth of 6.8% in 2022. Brazil’s growth forecast for 2021 is revised up to 4.2% from 3.2%, followed by growth of 2.5% in 2022. Russia’s forecast for both 2021 and 2022 is revised up by 0.2 pp to stand at 3.2% and 2.5%, respectively.
World oil demand growth expectations for 2021 remained unchanged from the previous month’s assessment. This is despite the above slight upward revision to economic growth, as the upwardly revised increment of the economic recovery is projected to be mainly in non-oil-intensive sectors. Oil demand is still estimated to increase by around 6.0 mb/d to average 96.6 mb/d. However, some revisions were taken into account in 1Q21 due to slower-than-anticipated demand in OECD Americas, offset by better-than-expected data from non-OECD countries in 2Q21. For 2022, world oil demand is still projected to increase by 3.3 mb/d y-o-y, unchanged from last month’s assessment. Total world oil demand is projected to surpass the 100 mb/d threshold in 2H22 and reach 99.9 mb/d on average for the whole of 2022. Economic activities are still projected to gain traction, supported by massive stimulus packages. Additionally, the COVID-19 pandemic is anticipated to be controlled by vaccination programmes and improved treatment, resulting in a further recovery in economic activity and a steady rise in oil demand in both the OECD and non-OECD.
Non-OPEC liquids supply growth forecasts in 2021 and 2022 have been revised up by 0.27 mb/d and 0.84 mb/d, respectively. These revisions are mainly due to the incorporation of the latest production adjustment decision of the non-OPEC countries participating in the Declaration of Cooperation (DoC), which are now considered, following the successful conclusion of the 19th OPEC and non-OPEC Ministerial Meeting on 18 July 2021. In addition, supply from the US and Canada is also subject to revisions this month. Non-OPEC liquids are now expected to grow by 1.1 mb/d in 2021 to average 64.0 mb/d. The main drivers for 2021 supply growth are anticipated to be Canada, Russia, China, the US, Norway and Brazil, with the US now expected to see y-o-y growth of 0.12 mb/d. For 2022, liquids supply is now expected to grow by 2.9 mb/d following new incremental production adjustments by the DoC’s non-OPEC members, led by Russia with 1.0 mb/d. The US, with y-o-y growth of 0.8 mb/d, together with Brazil, Norway, Canada and Guyana, will be the other key drivers. OPEC NGLs are forecast to grow by 0.1 mb/d y-o-y in both 2021 and 2022 to average 5.2 mb/d and 5.3 mb/d, respectively. OPEC crude oil production in July increased by 0.64 mb/d m-o-m, to average 26.66 mb/d, according to available secondary sources.
Global refinery margins trended upwards in July, supported by seasonal strength in transport fuels, with robust performance registered at the top of the barrel. In the US, a counter-seasonal decline in refinery utilization rates and subsequent downward pressure on product inventories lifted product markets. In Europe, refining margins benefitted from a reduction in utilization rates within the region registered in late June, as well as a tighter balance in major product markets due to limited product arrivals. This took place amid sustained road transport fuel consumption linked to softer mobility restrictions. Meanwhile, healthy regional fuel consumption levels in Asia, as well as robust petrochemical feedstock demand led to gains for clean products.
Market developments in the month of July provided little momentum to the languishing tanker market, with dirty freight rates remaining at subdued levels. While the demand for tankers is expected to pick up in 2H21, reducing some of the excess in tonnage availability amid increased scrapping, the rapid spread of the Delta variant has added some uncertainty regarding demand for products and crude, potentially pushing the tanker market recovery further into 2022.
US crude imports were broadly flat in July at near 18-month highs, averaging 6.5 mb/d, while crude exports dropped back to 2.7 mb/d, amid reduced flows to India. Japan’s crude imports plunged almost 20% m-o-m in June to average 1.9 mb/d, undermined by renewed lockdown measures and reduced expectations for a boost in consumption due to the Olympic Games in Tokyo. Meanwhile, China’s crude imports rose m-o-m in June, but remained at lower levels, averaging 9.8 mb/d, as government efforts to rein-in teapot refineries and crackdown on import quotas and tax irregularities dampened inflows. China’s crude imports are expected to be capped close to current levels over the coming months as refiners continue to destock within increased government oversight. India’s crude imports fell further in June, reaching an eight-month low of 3.9 mb/d, affected by refinery maintenance and ongoing Delta variant impacts. In contrast, India’s product imports rebounded by 20% m-o-m to average 0.9 mb/d, led by a strong jump in LPG and naphtha inflows, as economic activity returned.
Preliminary data for June sees total OECD commercial oil stocks down by 23.0 mb m-o-m. At 2,922 mb, inventories are 289.4 mb lower than the same month a year ago, 90.4 mb lower than the latest five-year average and 25.2 mb below the 2015–2019 average. Within components, crude stocks fell by 38.3 mb m-o-m and product stocks were up by 15.3 mb. At 1,416 mb, OECD crude stocks stood 96.2 mb below the latest five-year average and 70.5 mb below the 2015–2019 average. Measuring 1,507 mb, OECD product stocks exhibited a gain of 5.8 mb above the latest five-year average, and were 45.3 mb above the 2015–2019 average. In terms of days of forward cover, OECD commercial stocks fell m-o-m by 0.9 days in June to stand at 63.6 days. This is 12.4 days below June 2020 levels, 1.0 day below the latest five-year average, but 2.0 days above the 2015–2019 average.
Demand for OPEC crude in 2021 was revised down by 0.2 mb/d from the previous month assessment to stand at 27.4 mb/d, around 4.7 mb/d higher than in 2020. Demand for OPEC crude in 2022 was revised down by 1.1 mb/d from the previous month’s assessment to stand at 27.6 mb/d, around 0.2 mb/d higher than in 2021.