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  • Oil futures prices eased in March, pressured by sharply higher supplies from Middle East OPEC producers and a relentless build in US crude stocks as refiners in Europe and Asia prepared for maintenance. At the time of writing, ICE Brent was trading at roughly $58.25/bbl - some 50% below last June's peak. NYMEX WTI was around $52.35/bbl.
  • The forecast of global oil demand for 2015 has been raised by 90 kb/d to 93.6 mb/d, a gain of 1.1 mb/d on the year. The notable acceleration on 2014's 0.7 mb/d growth follows cold temperatures in 1Q15 and a steadily improving global economic backdrop.
  • Global supply rose by an estimated 1 mb/d month-on-month in March, to 95.2 mb/d, as OPEC production recorded its highest monthly increase in nearly four years. Annual gains of a whopping 3.5 mb/d were split between OPEC and non-OPEC production.
  • OPEC crude oil output soared by 890 kb/d in March, to 31.02 mb/d, on sharply higher Saudi Arabian, Iraqi and Libyan supplies. The 'call on OPEC crude and stock change' was revised marginally higher for 2H15, to 30.35 mb/d, above the group's official production ceiling, but left unchanged for 2015 versus last month's Report, at 29.5 mb/d.
  • OECD industry stocks slipped by 1.7 mb in February, despite a massive 36.4 mb build in crude oil stocks. Preliminary data show OECD inventories rising counter-seasonally in March, by 29.2 mb, as US crude holdings extended recent builds and refined products defied seasonal trends.
  • Global refinery crude demand is expected to fall seasonally to 77.3 mb/d in 2Q15, from 78 mb/d in 1Q15. While Atlantic Basin refiners mostly completed turnarounds in 1Q15, Asian refinery maintenance is set to ramp up sharply in 2Q15, with up to 2.5 mb/d of distillation capacity offline at its peak in May.

The plot thickens

Months into the process of market rebalancing from the oil price collapse, one might be hoping for more clarity on supply and demand impacts. Yet, in some ways, the outlook is only getting murkier. That's in part because the backdrop against which the adjustment is playing out is constantly changing. The recent framework agreement between Iran and the P5+1 is a case in point. One of the many questions hanging over the market today is, how quickly could Iran be expected to ramp up output and exports if the agreement were to be made permanent?

Given deep changes in supply and demand in recent years, the way lower prices impact the market is also different from previous price corrections. That too is causing uncertainties, and not just about the response of unconventional North American supply to lower prices. The demand response has taken the market by surprise. Unexpected pockets of demand strength have emerged. Should those be seen as a sign that the demand response to lower prices will prove more robust than expected, or rather as a temporary aberration that will lead back to renewed weakness later on?

Unexpected demand strength in crude and product markets has boosted refining margins in some of the very markets where demand had seemed to be the weakest. European product demand, long in secular decline, swung back to growth in some markets in early 2015, and the region's refining sector has found renewed vigour amid weaker-than-expected runs elsewhere. Previously tepid Indian demand has strengthened, as lower oil prices appear to offer further support to an already improving economic outlook. US transport fuel demand has surged in the last few months. Not all readings are positive, however. Some preliminary bullish data, such as US demand estimates for January, have been revised downwards. Statistics on global oil demand remain extremely patchy in any event, with few measurements of non-OECD demand so far this year.

Not all of the apparent pockets of demand strength may be sustainable. At least some product buying has been meeting storage demand. In China, in particular, product stocks have surged in early 2015, while implied crude builds have also remained strong. European product cover is rising, bucking seasonal trends, on high refinery output. High OECD demand for middle distillates and LPG in early 2015 was largely driven by cold weather, a temporary factor if there ever was one. High deliveries might also reflect in part price-opportunistic product buying - in effect borrowed demand, leading to weaker growth later on. In several large producer countries, such as Brazil and Nigeria, demand is reeling from the effects of lower oil revenues and other factors. Meanwhile, seasonal refinery maintenance in Asia is about to remove one of the crude market's biggest props. 

On the supply front, considerable uncertainty remains about the ultimate outcome of the talks between Tehran and world powers and the timing of a potential lifting of sanctions. But an increase in Iranian exports has become a real possibility. As noted in this Report, while it may take some time for Iran to expand its production capacity, ramping up flows from already developed fields could be faster. Even quicker would be a hike in exports from oil in floating storage, of which there is reportedly enough to sustain shipments of some 180 kb/d for six months.

Recent developments thus may call into question past expectations that supply and demand responses would tighten the market from mid-year on. Stronger-than-expected 1Q15 demand might signal a faster recovery - as would a faster-than-expected decline in North American unconventional supply - but might just as likely point to a slower one if pockets of demand strength prove short-lived and lead to weaker deliveries later on. Advances in talks on Tehran's nuclear program not only call into question past working assumptions on future Iranian output, but may already have encouraged other producers to hike supply and stake out market share ahead of Iran's potential return. All in all, that suggests the market rebalancing may still be in its early stage.