OPEC Keeps Forecast of Oil Demand for Second Half of 2021 Unchanged
Crude Oil Price Movements
Spot crude prices experienced firm gains in the month of May, rising on average about 6% month-on-month (m-o-m), settling at multi-month highs, amid stronger physical oil market fundamentals. Refiners in most regions showed increases in buying interest on the expectation of a further oil demand recovery with the approach of the summer driving season. The OPEC Reference Basket (ORB) increased by $3.67, or 5.8%, m-o-m in May to average $66.61/b, the highest since May 2019. Year-to-date, the ORB was up 56.8%,
averaging $62.16/b, compared to $39.65/b on average over the first five months of 2020. Crude oil futures prices rose in May, with ICE Brent increasing $2.98, or 4.6%, to average $68.31/b, and NYMEX WTI gaining $3.45, or 5.6%, to an average of $65.16/b. Consequently, the Brent-WTI spread narrowed 47¢ to average $3.15/b in May. The market structure of all three major oil benchmarks remained in sustained backwardation. Hedge funds and other money managers reduced their net long positions for crude futures and options in May, mainly for Brent.
The global economic growth forecast for 2021 remains unchanged at 5.5%, although the forecast continues to be impacted by uncertainties including the spread of COVID-19 variants and the speed of the global vaccine rollouts. In addition, sovereign debt levels in many regions, inflationary pressures and central bank responses remain key factors to monitor. US economic growth in 2021 is revised up slightly to stand at 6.4%, following a contraction of 3.5% in 2020. The economic growth forecast for the Euro-zone in 2021 is lowered slightly to stand at 4.1%, following a contraction of 6.7% last year. Similarly, Japan’s economic growth forecast is lowered to 2.8% for 2021, following a contraction of 4.7% in 2020. After growth of 2.3% in 2020, China’s economic growth forecast in 2021 remains at 8.5%. Given the ongoing COVID-19 related challenges, India’s 2021 economic growth forecast is revised down slightly to 9.5%, following the contraction of 7.0% in 2020. Brazil’s growth forecast for 2021 remains unchanged at 3.0%, following a contraction of 4.1% in 2020. Russia’s forecast for 2021 remains at 3.0%, following a contraction of 3.1% in 2020.
World Oil Demand
World oil demand is now estimated to have declined by 9.3 mb/d in 2020, a slight improvement of 0.1 mb/d on last month’s estimate, mainly reflecting the most up-to-date data for both the OECD and non-OECD regions. Total global oil demand is expected to average 90.6 mb/d. For 2021, world oil demand growth is kept unchanged at 6.0 mb/d, with total oil demand standing at 96.58 mb/d. OECD demand is revised slightly lower on an annualized basis, mainly reflecting lower-than-expected data from OECD Americas and Europe in 1Q21. However, initial data for April in both regions, as well as positive mobility developments given easing restriction measures and border openings, encouraged an upward revision to 2Q21 data. This offset most of the 1Q21 downward revision. In the non-OECD, oil demand was revised slightly higher, mainly due to positive 2Q21 data from the Middle East.
World Oil Supply
Non-OPEC liquids supply in 2020 is estimated to average 62.9 mb/d, representing a y-o-y contraction of 2.5 mb/d. For 2021, non-OPEC liquids supply is revised up by 0.1 mb/d from last month’s assessment, and is now forecast to grow by 0.8 mb/d to average 63.7 mb/d. This is mainly due to a faster-than-expected recovery in US liquids production of 2.5 mb/d in March. Additionally, the supply forecast for Norway, China, and Indonesia is also revised up, while the supply forecast in the UK, Brazil and Colombia is revised down. The main drivers for 2021 supply growth are anticipated to be Canada, Brazil, China and Norway, while US liquids supply is now expected to only grow by a marginal 0.03 mb/d y-o-y. US crude oil is actually forecast to decline y-o-y by 0.1 mb/d to 11.2 mb/d. OPEC NGLs are forecast to grow by 0.1 mb/d y-o-y in 2021 to average 5.2 mb/d, following an estimated contraction of 0.2 mb/d in 2020. OPEC crude oil production in May increased m-o-m by 0.39 mb/d, to average 25.46 mb/d, according to available secondary sources to date.
Product Markets and Refining Operations
Refinery margins showed diverging trends in May. Margins increased in the US Gulf Coast (USGC) were supported by unplanned refinery outages which limited the stronger recovery in run rates and kept product output relatively supressed. In contrast, Europe and Asia margins performed negatively as refining economics showed losses. Pressure came mainly from the top and bottom-sections of the barrel, reflecting rising product output rates. Global capacity offline fell considerably in May, with trends indicating the end of peak refinery turnaround season, and hence run rates are expected to be strong over the coming months.
Dirty tanker rates saw mixed movement in May, although they remain at low levels. Improving US market supported rates on the UK-US route, while very low rates on the Mideast-Asia Pacific route edged-up amid anticipation of the end of seasonal maintenance. Meanwhile, clean rates were largely steady. There has been a slight improvement in sentiment for the outlook for dirty tanker rates in 2H21, although scrapping will still need to pickup to better balance tonnage supply with demand for cargoes.
Crude and Refined Products Trade
Preliminary data shows US crude imports rose 0.2 mb/d in May to average 6.0 mb/d, the highest in 11 months. US crude exports dipped again, averaging 2.8 mb/d in May, amid lower buying from the Asian region. With the start of the driving season and a pick-up in economic activity, US crude and product trade flows will provide a key support for the market in the coming months, together with OECD Europe. Tracking data shows a steady increase in OECD Europe crude imports since February and crude exports declined, amid lower production and improving demand in 2Q21 given the easing of lockdown measures. China’s crude imports dropped to just below 10 mb/d in April, amid planned refinery maintenance, with a further decline in May to a five-month low of 9.65 mb/d seen in preliminary data. China’s crude imports are expected to remain low in 2Q21, before picking up again in 3Q21. Stricter oversight of refinery activities and the end of a tax loophole is likely to weigh on both product imports and exports in the coming few months. Meanwhile, India’s crude imports recovered from a five-month low in April to average 4.5 mb/d. The vicious surge in COVID-19 cases which reached record
levels in May will likely weigh on demand for crude imports for May and June, with local refiners expecting the situation to improve in July. Constrained domestic consumption could free up product for exports over the period.
Commercial Stock Movements
Preliminary data shows that total OECD commercial oil stocks fell m-o-m by 6.4 mb in April. At 2,962 mb, inventories were 160 mb lower than the same month a year ago, 25 mb below the latest five-year average, and around 34 mb higher than the 2015–2019 average. Within the components, crude stocks fell m-o-m by 13.6 mb, while product stocks rose 7.2 mb. OECD crude stocks stood at 1,475 mb in April, which is 36 mb less than the latest five-year average and 8 mb lower than the 2015–2019 average. Product stocks stood at 1,487 mb, which represents a surplus of 11 mb compared to the latest five-year average and 43 mb higher than the 2015–2019 average. In terms of days of forward cover, OECD commercial inventories declined m-o-m by 0.9 days in April to stand at 66.0 days. This is 12.3 days lower than the year-ago level, some 0.5 days above the latest five-year average, and 3.9 days above the 2015–2019 average.
Balance of Supply and Demand
Demand for OPEC crude in 2020 is revised up by 0.2 mb/d from last month’s assessment to stand at 22.7 mb/d, which is 6.6 mb/d lower than in 2019. For 2021, demand for OPEC crude is forecast to stand at 27.7 mb/d, unchanged from last month’s assessment and around 5.0 mb/d higher than in 2020.