Summary

The OPEC Reference Basket (ORB) bounced back in January after two consecutive months of decline, gaining more than 3%, or $1.80, m-o-m to average $58.74/b. Crude oil prices improved over the month buoyed by robust market fundamentals and signs of tightening crude supply, as well as firm crude oil demand, particularly from Asia Pacific. All ORB component values improved in January, along with their respective crude oil benchmarks, and positive monthly changes were seen in their respective OSPs and crude differentials.

Crude oil futures prices recovered in January from low levels registered in December 2018 and ended January substantially higher compared with the previous month, increasing by around 5%, as investors gained more confidence amid bullish oil market fundamentals and signs of tighter crude oil supply. Both Brent and WTI futures contracts continued to be supported by geopolitical risk. In January, ICE Brent was on average $2.57, or 4.4%, m-o-m higher at $60.24/b, while NYMEX WTI rose m-o-m by $2.57, or 5.2%, to average $51.55/b. On an annual average, ICE Brent was $8.84, or 12.8%, lower at $60.24/b, while NYMEX WTI decreased by $12.11, or 19.0%, to $51.55/b. DME Oman crude oil futures also progressed m-o-m by $2.66 in January, or 4.7%, over the previous month to settle at $59.64/b. For the yearly average, DME Oman was down by $6.76, or 10.2%, at $59.64/b.

Hedge funds and other money managers increased their bullish positions in January, following three consecutive months of decline, after they suffered heavy losses last year following wrong-way bets on oil prices. Money managers returned to the market with cautious optimism amid more balanced global oil market and growing sings of tightening supply.

The contango structure of ICE Brent flattened, as the market moved toward more balance, while the NYMEX WTI structure remained in significant contango, reflecting US market fundamentals. However, the DME Oman forward curve structure remained in backwardation.

The sweet/sour differential narrowed in Europe and the US Gulf Coast (USGC) due to planned and unplanned reductions in medium and heavy sour crudes in different regions, while the supply of light sweet crudes, particularly US tight oil, continued to increase. Lower light distillate margins and a global gasoline surplus also contributed to narrowing the spread.