The OPEC Reference Basket (ORB) averaged $79.68/b in December, a drop of $10.05 m-o-m, or 11.2%. The ICE Brent front-month fell $9.51, or 10.5%, to average $81.34/b, and NYMEX WTI dropped by $7.87, or 9.3%, to average $76.52/b. The Brent/WTI futures spread narrowed further m-o-m, contracting by $1.64 to average $4.82/b. The market structure of ICE Brent and NYMEX WTI weakened again as the first-to-third month spreads moved into contango in December. The combined futures and options net long positions of hedge funds and other money managers rose slightly in December compared to late-November’s low levels for both ICE Brent and NYMEX WTI.
The world economic growth forecast for 2022 is revised up slightly to 3%, given better-than-anticipated 2H22 economic performance in various key economies. The 2023 global economic growth forecast remained unchanged at 2.5%. For the US, the economic growth forecast is revised up to 2% for 2022 and 1% for 2023. Similarly, the Euro-zone economic growth forecast is revised up to 3.2% for 2022 and 0.4% for 2023. Japan’s economic growth forecast is revised down to 1.2% for 2022, but remained at 1% for 2023. China’s economic growth forecasts remained unchanged at 3.1% for 2022 and 4.8% for 2023. India’s economic growth forecast is revised up to 6.8% for 2022 but remained at 5.6% for 2023. Brazil’s economic growth forecast is revised up to 2.8% for 2022, but remained unchanged at 1% for 2023. The 2022 economic growth forecast for Russia is revised up to a contraction of 4%, followed by a small contraction of 0.5% in 2023. Although growth momentum is expected to carry over into 2023, the world economy will continue navigating through many challenges, amid high inflation, monetary tightening by major central banks, and high sovereign debt levels in many regions. Moreover, geopolitical and COVID-19 related risks and uncertainties may add to the downside risk in a few selected economies.
The world oil demand forecast for 2022 is unchanged at 2.5 mb/d. Oil demand is adjusted downward in the 3Q22, amid data showing a demand decline in the OECD and China, but non-OECD countries outside of China are revised higher. Similarly, world oil demand growth for 2023 is also unchanged at 2.2 mb/d, with the OECD growing by 0.3 mb/d and non-OECD at 1.9 mb/d. This forecast remains surrounded by uncertainties including global economic developments, shifts in COVID-19 containment policies, and geopolitical tensions.
Non-OPEC liquids supply is estimated to expand by 1.9 mb/d in 2022, unchanged from last month’s assessment. Upward adjustments to liquids production in Russia and OECD Americas were largely offset by downward revisions to OECD Europe and OECD Asia Pacific. The main drivers of liquids supply growth for 2022 are the US, Russia, Canada, Guyana, China and Brazil, while production is expected to see the largest declines in Norway and Thailand. For 2023, non-OPEC liquids production growth remains unchanged from last month’s assessment at 1.5 mb/d. The main drivers of liquids supply growth are expected to be the US, Norway, Brazil, Canada, Kazakhstan and Guyana, while declines are forecast in Russia and Mexico. Nonetheless, large uncertainties remain over the impact of geopolitical developments, as well as expectations for US shale output in 2023. OPEC NGLs and non-conventional liquids are set to grow by 0.1 mb/d in 2022 to average 5.4 mb/d and by 50 tb/d in 2023 to average 5.4 mb/d. OPEC-13 crude oil production in December increased by 91 tb/d m-o-m to average 28.97 mb/d, according to available secondary sources.
Refinery margins weakened in all main trading hubs in December, as product availability continued to rise. The largest losses were in the Atlantic Basin, particularly from transport fuels, reflecting the easing tightness, especially in the middle section of the barrel. Similarly, in Asia, margins were pressured by elevated refinery runs and fuel supplies. This weighed on regional gasoil and jet/kero markets, despite the relaxation of China’s zero COVID-19 policy and positive regional gasoline and residual fuel performance. Global refinery processing rates continued to rise in December, gaining nearly 700 tb/d as refineries ramped up in line with seasonal trends. In the coming month, refinery intakes are expected to remain strong, as returning US capacity from the recent winter storm will likely offset the slight rise in offline capacity elsewhere.
Dirty freight rates in December fell from elevated levels as activities slowed ahead of seasonal holidays, with losses on almost all monitored routes. VLCCs on average showed the biggest decline, with spot freight rates on the Middle East-to-East route falling 31% m-o-m. In the Suezmax class, dirty spot freight rates dropped 22% on the US Gulf Coast to Europe route. Aframax rates saw the smallest decline, slipping around 3% on the inter-Mediterranean route. In contrast, clean rates remained robust, up 50% on the Middle East-to-East route and around 27% higher in the Mediterranean. Continued tonnage demand amid ongoing trade dislocations kept clean tanker availability relatively tight.
US crude imports followed seasonal trends, falling to an eight-month low of 6.2 mb/d in December. US crude exports remained above 4 mb/d for the third-consecutive month. US product flows were broadly steady, despite a cold wave that shut-in US refineries and disrupted travel. Preliminary figures show crude imports into OECD Europe remaining at healthy levels through the end of the year, despite imports of Russian crude falling to near zero excluding flows to Turkey. OECD Europe product imports are also seen to be higher in anticipation of the impending February sanctions on Russian oil product imports. Japan’s crude imports fell to a five-month low in November, averaging 2.6 mb/d and marking the first y-o-y decline in 15-months. China’s crude imports continued to recover in November, averaging 11.4 mb/d, and preliminary data shows December flows remaining at similarly high levels. China’s product exports jumped to the highest since June 2020, with diesel and gasoline outflows rising sharply. India’s crude imports continued to recover from the 11-month low reached in September, averaging of 4.6 mb/d in November. India’s product imports rose to a seven-month high, driven by LPG flows which were the highest on record. Product exports picked up from a two-year low in the previous month, with gasoline leading gains.
Preliminary November data sees total OECD commercial oil stocks up 2.7 mb from the previous month. At 2,768 mb, inventories were 26 mb higher than the same month a year ago, 137 mb lower than the latest
five-year average and 173 mb below the 2015–2019 average. Within the components, crude stocks fell by 25.8 mb, while product stocks rose m-o-m by 28.5 mb. At 1,343 mb, OECD crude stocks were 22 mb higher than the same time a year ago, but 73 mb lower than the latest five-year average and 108 mb lower than the 2015–2019 average. OECD product stocks stood at 1,425 mb, representing a surplus of 4 mb from the same time a year ago, but 63 mb lower than the latest five-year average and 65 mb below the 2015–2019 average. In terms of days of forward cover, OECD commercial stocks rose m-o-m by 0.1 day in November to stand at 59.5 days. This is 0.3 days above levels seen in the same month last year, but 3.5 days less than the latest five-year average and 2.6 days lower than the 2015–2019 average.
Demand for OPEC crude in 2022 remains broadly unchanged from the previous month’s assessment to stand at 28.5 mb/d. This is around 0.5 mb/d higher than in 2021. Demand for OPEC crude in 2023 remained also unchanged from the previous assessment to stand at 29.2 mb/d, which is 0.6 mb/d higher than in 2022.