- Non-OPEC output edged higher standing at 620,000 b/d more than 2016
Global oil supply rose 90,000 b/d in September to 97.5 mb/d as non-OPEC output edged higher with output standing at 620,000 b/d higher than last year, the October edition of Oil Market Report has revealed.
Also, the impact of hurricanes, which ravaged some states and islands in the United States recently, slowed the growth of global oil demand by one million barrels per day (mb/d) to 1.2 million in September,
According to the OMR, a publication of the International Energy Agency (IEA), following very strong year-on-year demand growth of 2.2 mb/d in the second quarter, the pace slowed to 1.2 mb/d in the third quarter, reflecting “relatively weak July and August data and the impact of hurricanes in September.”
In spite of this slowdown, the OMR maintained its forecast of global demand growth of 1.6 mb/d (or 1.6 per cent) and 1.4mb/d in 2018 (or 1.4 per cent).
Noting that global oil supply rose 90,000 b/d in September to 97.5 mb/d as non-OPEC output edged higher with output standing at 620,000 b/d higher than last year, it said in 2017, non-OPEC supplies were expected to grow by 0.7 mb/d, followed by a 1.5 mb/d increase in 2018.
The OMR, which confirmed compliance with supply cuts for the year-to-date was 86 per cent in September, stated that OPEC crude output was virtually unchanged in the review month as slightly higher flows from Libya and Iraq offset lower supply from Venezuela. “Output of 32.65 mb/d was down 400 kb/d on a year ago.”
The IEA publication also showed that benchmark crude prices increased by $2-4/bbl in September over the level in August, marking the third straight month of gains. According to the report, “Middle distillate prices increased almost twice as fast as crude, reflecting lower refinery throughputs and higher demand.”
For the OECD commercial stocks, the OMR said it fell 14.2 mb in August from the revised July. “The surplus over the five-year average fell to 170 mb. Global stocks are likely to have drawn in 3Q17 as reductions in floating storage and the OECD outweighed net builds in China,” it noted.
Looking forward to the fourth quarter, the October OMR posited: Our refinery throughput forecast edges up to 80.9 mb/d, up 0.1 mb/d quarter-on-quarter. Our first forecast for January 2018 implies 1.2 mb/d year-on-year growth, although runs decline by 0.4 mb/d from December to just under 82 mb/d.”
It added: “Our global crude and product balances show inventories drawing in 2017 by 0.1 mb/d and 0.2 mb/d, respectively. For next year, the crude and product markets look broadly balanced, assuming OPEC holds output steady at around current levels.”
Meanwhile, ahead of the next OPEC meeting, Saudi Arabia and Russia have been reported by the IEA in the OMR to have “strengthened their relationship with a high level summit, and a series of investment agreements accompanied by statements suggesting that the current oil output cuts might be tightened.” “Of course, we must wait and see what happens.
But there is little doubt that leading producers have re-committed to do whatever it takes to underpin the market and to support the long process of re-balancing.”
The OMR explained that the backdrop to these high-level manoeuvres is the recent volatility we have seen in the Brent crude market, with prices coming close to the symbolic level of $60/bbl before retreating to $57/bbl. According to the report, “Uncertainty with some suppliers (Libya, Venezuela, Iran and northern Iraq) and signs of possibly slower than expected growth in US shale production, coupled with strong oil demand, provided upward momentum to the market. Producers looking for higher prices were on the verge of declaring victory.”
The report, which pointed out that “the number of net long positions held by money managers in Brent futures rose to their highest-ever level through September”, however, stated that, more recently, enthusiasm has peaked and profit taking has set in.
“For WTI, the mini bull run was more limited because logistical constraints saw crude oil stocks increase at Cushing, causing the discount to Brent to blow out to nearly $7/bbl from only $2/bbl in June.
“Even the huge increase in US crude oil exports in late September to a record level of close to 2mb/d only increased the value of WTI versus Brent by about 95 cents/bbl. Markets have a tendency to over-shoot during headline-heavy periods, which is probably what we saw with Brent,” it explained.