Crude oil futures prices breached nine-month highs in early February as improved economic signals from China and the U.S., robust financial market activity and colder temperatures in the Northern Hemisphere buoyed market sentiment. Brent futures last traded at $118.75/bbl and WTI at $97.35/bbl.
Despite signs of improvement in China and the U.S., weak macroeconomic conditions are forecast to keep global oil demand growth capped at around 840 kb/d in 2013, to 90.7 mb/d. The growth projection is 90 kb/d less than estimated last month, as the IMF trimmed their GDP forecast to 3.5%, from 3.6% previously.
Global supplies fell by 300 kb/d in January, to 90.8 mb/d. Non-OPEC production slipped by 190 kb/d from the prior month, to 54.2 mb/d but is expected to increase by 750 kb/d in 1Q13 y-o-y. For 2013, non-OPEC supply is projected to rise by 1 mb/d to 54.4 mb/d.
OPEC crude supply hit 12-month lows in January, off by 100 kb/d m‑o‑m to 30.34 mb/d despite slightly higher output in Saudi Arabia and Kuwait. OPEC NGL supply was cut by 100 kb/d for 1Q13, partly due to the effect of a terrorist attack in Algeria. The ‘call on OPEC crude and stock change’ for 1Q13 was cut by 100 kb/d, to 29.7 mb/d.
OECD commercial stocks edged down by 22 mb in December to 2 688 mb, less than the average draw for that month. Crude and ‘other products’ led the decline while gasoline and middle-distillate stocks increased. Total products now cover 30.4 days, 0.4 day higher than at end-November.
The estimate of global refinery crude runs has been cut to 75.1 mb/d for 1Q13 but remains up by 515 kb/d on 4Q12. Plant maintenance slashed U.S. runs in January, but Asian runs hit new highs ahead of Chinese maintenance. Strong Atlantic Basin gasoline cracks, resilient gasoil cracks and narrowing fuel oil discounts lifted January margins.
Yesterday afternoon the EIA released their Short Term Energy Outlook. As mentioned above they raised their projection for oil demand growth for 2013. Following are the main oil related highlights from the EIA report.
Market fundamentals and expectations strengthened in January 2013 because of earlier-than-expected cutbacks in Saudi Arabian oil production and greater optimism about economic growth, particularly in China, which have supported higher oil prices. EIA expects oil markets to tighten in the first quarter of 2013, but increasing global supply more than offsets higher global consumption through the rest of the forecast period. Projected world supply increases by 1.1 million bbl/d in 2013 and 2.0 million bbl/d in 2014, with most of the growth coming from outside the Organization of the Petroleum Exporting Countries (OPEC). North America will account for much of this growth. Projected world liquid fuels consumption grows by an annual average of 1.0 million bbl/d in 2013 and 1.4 million bbl/d in 2014. Countries outside the Organization for Economic Cooperation and Development (OECD) drive expected consumption growth.
World liquid fuels consumption grew by 0.9 million bbl/d in 2012 to reach 89.2 million bbl/d. EIA expects that this growth will pick up in 2013 and accelerate in 2014 because of a moderate recovery in global economic growth; consumption reaches 90.2 million bbl/d in 2013 and 91.6 million bbl/d in 2014. Non-OECD Asia is the leading regional contributor to expected global consumption growth.
OECD liquid fuels consumption declined by 0.4 million bbl/d in 2012. EIA projects OECD consumption to further decline by 0.3 million bbl/d in 2013 because of declining consumption in Europe. OECD consumption flattens in 2014 as European consumption begins to flatten in response to higher economic growth.
China's economy has improved since the third quarter of 2012. as key manufacturing indexes and refinery crude oil inputs have increased. Infrastructure investment and consumer spending indicate signs of strong economic growth in China, although not at the high rates seen in recent years. EIA also expects refinery crude oil inputs to be bolstered in 2013 as oil product inventories are restocked and new refining capacity comes on line. EIA estimates that liquid fuels consumption in China increased by 380,000 bbl/d in 2012, and will increase by 450,000 bbl/d in 2013 and by 470,000 bbl/d in 2014.
EIA projects non-OPEC liquids production will increase by 1.2 million bbl/d in 2013 and by another 1.4 million bbl/d in 2014. North America accounts for about two-thirds of the projected growth in non-OPEC supply over the next two years because of continued production growth from U.S. tight oil formations and Canadian oil sands. EIA has slightly lowered its forecast for the growth in Canadian oil production in 2013, due in part to further delays in initial production from the Kearl oil sands mining project.
OPEC member countries, particularly Saudi Arabia, cut production heavily in fourth-quarter 2012, which contributed to an increase in crude oil prices at the start of 2013. Projected OPEC crude oil supply decreases by 0.3 million bbl/d in 2013 from the year before and then rises by 0.3 million bbl/d in 2014. Most of the decline in 2013 comes from Saudi Arabia, which responds to non-OPEC growth and increasing production from some OPEC members, such as Iraq, Nigeria, and Angola. In Angola, output at the BP-operated PSVM (Plutão, Saturno, Vénus, and Marte) development recently came on line. Production at PSVM is expected to build this year and peak at 150,000 bbl/d in 2014.
EIA estimates that OECD commercial oil inventories at the end of 2012 totaled 2.66 billion barrels, equivalent to 57.2 days of supply. Projected OECD oil inventories fall slightly and end 2013 at 2.63 billion barrels (56.4 days of supply). Inventories increase slightly to 2.69 billion barrels (57.8 days of supply) by the end of 2014.