Oil Market Report - January 2019

A Marathon, Not a Sprint

Last month, the International Energy Agency (IEA) questioned whether there was a floor under oil prices following the signing of a new Vienna Agreement aimed at rebalancing the oil market. Initially, there was enthusiasm for the deal, but skepticism and concerns about the global economic backdrop led to a decline in prices, with Brent crude oil falling by $10/bbl and bottoming out at around $50/bbl on December 24. This decline was beneficial for consumers, as gasoline prices in the US Gulf Coast averaged $1.89/gal in early January, compared to a summer peak of $2.79/gal, and in India, prices were about 14% below the early October peak.

However, recent data shows that the producers' commitment to cutting output has translated into action. In December, OPEC production fell by nearly 600 kb/d, and Saudi Arabia signaled that further significant cutbacks would occur in January and beyond. As a result, the Brent price has rebounded to move back above $60/bbl. While this suggests a qualified yes to the question of whether there is a floor under prices, the journey to a balanced market is more likely to be a marathon rather than a sprint.

Demand

Summary

• Global Oil Demand Growth: Estimates for global oil demand growth remain unchanged at 1.3 mb/d in 2018 and 1.4 mb/d in 2019.
• Non-OECD Countries: Non-OECD countries dominate oil demand growth in 2019, with 1.15 mb/d expected, up from 875 kb/d in 2018. China and India account for 62% of the total growth.
• OECD Countries: OECD growth will slow from 390 kb/d in 2018 to 280 kb/d in 2019, with the US providing 82% of the OECD total.

Supply

Summary

• Global Oil Supply: Global oil supply fell by 950 kb/d in December due to lower OPEC output ahead of new supply cuts. Total supply was up 2.8 mb/d year-over-year.
• OPEC Crude Oil Supply: OPEC crude oil output dropped by 590 kb/d in December to 32.39 mb/d. Saudi Arabia reduced production from record highs, while Iran and Libya experienced further losses. OPEC production is expected to fall further in January with new Vienna Agreement cuts taking effect.
• Non-OECD Production: Non-OPEC production growth is set to slow to 1.6 mb/d in 2019, down from a record 2.6 mb/d in 2018.

Refining

Summary

• Refining Throughput: Global refining throughput reached a record high of 84.2 mb/d in December, leading to falling refinery margins despite declining crude prices.
• New Capacity: The refining system must absorb 2.6 mb/d of new capacity this year, the largest annual increase since the 1970s.

Stocks

Summary

• OECD Commercial Stocks: OECD commercial stocks fell by 2.5 mb/month-on-month in November to 2,857 mb. They showed little volatility during 2018, moving within a narrow range of 60 mb and likely finishing the year 12 mb, or 0.4%, higher than at the end of 2017.

Prices

Market Overview

• Futures Markets: Leading producers have restated their commitment to cut output, and data show that words were transformed into actions. In December, OPEC production fell by nearly 600 kb/d, and Saudi Arabia indicated further significant cutbacks in January and beyond.
• Spot Crude Oil Prices: The Brent price has rebounded to move back above $60/bbl.
• Crack Spreads: Well-supplied markets, particularly for gasoline and jet fuel, pressured crack spreads.