Oil Market Report - 2012 Archives

HIGHLIGHTS

• Oil Markets Begin 2012 with Supply Issues:

  • EU Ban on Iranian Oil Imports: The European Union plans to ban Iranian oil imports, leading to potential retaliation from Iran.
  • Strait of Hormuz Threats: Iran threatened to close the Strait of Hormuz, through which approximately one-third of world oil exports flow.
  • Oil Price Impact: Oil prices initially spiked by $4-$5 per barrel ($bbl) due to these concerns but later eased amid growing eurozone debt issues.
  • Current Prices: Brent crude was trading around $112/bbl, while West Texas Intermediate (WTI) was at $100.50/bbl.

• Declining Global Oil Demand:

  • Fourth Quarter Decline: Global oil demand showed a year-on-year decline of 0.3 million barrels per day (mb/d) in the fourth quarter of 2011, marking its first drop since the late stages of the credit crunch.
  • Expected Growth: The decline has trimmed global oil demand growth for 2012 to 1.1 mb/d (previously 1.3 mb/d).

• Non-OPEC Supply:

  • December Decline: Non-OPEC supply fell by 140 kb/d to 53.2 million barrels per day (mb/d), primarily due to a seasonal decline in biofuels and low supply from the Former Soviet Union (FSU).
  • Middle East Unrest: Unplanned outages and Middle Eastern unrest limited annual growth to 45 kb/d.
  • Rebound Expected: A rebound is anticipated for the first quarter of 2012 (340 kb/d) and 2012 as a whole (1.0 mb/d), with non-OPEC output averaging 53.7 mb/d.

• OPEC Supply:

  • December Increase: OPEC crude output rose by 240 kb/d to 30.89 mb/d in December, the highest in over three years, driven by rapid recovery in supplies from Libya and lesser increases from Saudi Arabia and the UAE.
  • Output Target: OPEC raised its output target to 30 mb/d for 2012, close to OPEC Reference Monthly Report (OMR) projections for the "call on OPEC crude and stock change."

• OECD Inventory Changes:

  • November Rise: OECD industry oil inventories increased by 4.1 million barrels (mb) to 2,647 mb, or 57.5 days of forward cover, in November, led by North American and European gasoline.
  • Stock Levels: Despite the increase, stock levels remained below the five-year average for a fifth consecutive month.
  • December Drawdown: December preliminary data show a seasonal drawdown of 23.6 mb in OECD industry stocks.

• Refinery Crude Runs:

  • Fourth Quarter and First Quarter Adjustments: Global refinery crude runs were revised downward by 250 kb/d for the fourth quarter of 2011 and 170 kb/d for the first quarter of 2012, to 74.8 mb/d and 74.9 mb/d, respectively.
  • Weak Economic Growth and Mild Weather: These factors led to a contraction in global demand in the fourth quarter of 2011.
  • Recent Refinery Shutdowns: Early 2012 activity levels are curbed by recent refinery shutdowns in Europe.

Summary

The oil market began 2012 with significant supply concerns, particularly regarding Iran's oil exports and potential disruptions through the Strait of Hormuz. Despite initial price spikes, oil prices eased due to growing concerns about the eurozone debt crisis. Global oil demand showed a decline in the fourth quarter of 2011, with a projected growth rate of 1.1 mb/d for 2012. Non-OPEC supply faced challenges, including a seasonal decline in biofuels and low supply from the FSU, while OPEC saw an increase in production, especially from Libya. OECD inventory levels remained below historical averages, and global refinery activities were adjusted downward due to weak economic growth and recent shutdowns.