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  • Crude oil benchmarks were locked in a narrow range during October as continuing oversupply in world markets and a strong US dollar limited the impact of strikes in Brazil and geopolitical tensions. At the time of writing, ICE Brent was trading at $44.43/bbl and NYMEX WTI at $41.75/bbl.
  • Global demand growth is forecast to slow to 1.2 mb/d in 2016 after surging to a five-year high of 1.8 mb/d in 2015. Momentum eases towards its long-term trend as recent props - sharply lower oil prices, colder-than-year earlier winter weather and post-recessionary bounces in some countries - are likely to give way.
  • Global oil supplies breached 97 mb/d in October, as non-OPEC output recovered from lower levels the previous month. Despite the resilience of producers such as Russia, non-OPEC supply is forecast to contract by more than 0.6 mb/d next year. US light tight oil (LTO), the driver of non-OPEC growth, is expected to decline by 0.6 mb/d in 2016.
  • OPEC crude supply held steady in October at 31.76 mb/d with declines in Iraq and Kuwait offset by higher supply from Libya, Saudi Arabia and Nigeria. A slight tightening in fundamentals lifts the 2016 'call' on OPEC by 0.2 mb/d from last month's Report to 31.3 mb/d.
  • OECD commercial inventories rose counter-seasonally by 13.8 mb to stand at a record near 3 billion barrels by end-September. The pace of global stockbuilding slowed during the third quarter to 1.6 mb/d from 2.3 mb/d in 2Q15, but remained significantly above the historical average.
  • Global refinery runs sank by 1.2 mb/d in October to 78.2 mb/d with seasonal maintenance in full swing, leading to a significant reduction in annual throughput growth. Margins edged lower in October versus September but remained robust despite high product stocks.

3 billion barrel cushion

Stockpiles of oil at a record 3 billion barrels are providing world markets with a degree of comfort. This massive cushion has inflated even as the global oil market adjusts to $50/bbl oil. Demand growth has risen to a five-year high of nearly 2 mb/d, with India galloping to its fastest pace in more than a decade. But gains in demand have been outpaced by vigorous production from OPEC and resilient non-OPEC supply - with Russian output at a post-Soviet record and likely to remain robust in 2016 as well. The net result is brimming crude oil stocks that offer an unprecedented buffer against geopolitical shocks or unexpected supply disruptions.

The stock overhang that first developed in the US on the back of soaring North American crude production, has now spread across the OECD. Since the second quarter, inventories in Asia Oceania have swollen by more than 20 million barrels. In Europe, record high Russian output and rising deliveries from major Middle East exporters are filling the tanks. Crude oil stocks are also piling up in the non-OECD, with China building inventories at a 0.7 mb/d clip during the third quarter and India starting to pour oil into its strategic reserves. This surplus crude provides some relief, with OPEC's spare production buffer stretched thin as Saudi Arabia - which holds the lion's share of excess capacity - and its Gulf neighbours pump at near record rates.

The shock absorber provided by oil stocks is no longer restricted to just crude. As refineries ran flat out to meet soaring demand for gasoline in top consumers the United States and China, distillate inventories ballooned as a consequence. This is not only due to seasonal factors: lower oil prices are also having an uneven influence on consumers. While motorists are responding relatively quickly to cheaper gasoline by purchasing bigger cars and taking to the roads, middle distillate demand growth has failed to match the heights seen in gasoline as industrial activity in many countries wavers.

Moreover, world demand growth is forecast to ease closer to a long-term trend of 1.2 mb/d in 2016 as supportive factors that have recently fuelled consumption are expected to fade. The impact of oil's steep price plunge on end users is unlikely to be repeated and economic conditions are forecast to remain problematic in countries such as China.

As winter approaches, stocks of diesel - the heating fuel of choice for Europe and the US Northeast - are now brimming. Between February and August, OECD middle distillate stocks surged by over 84 mb. By end-August they stood close to 600 mb, their highest absolute level since 2010. By end-September they remained a comfortable 36 mb above average and 49 mb above a year ago.

This could protect the market from a supply crunch should there be a lengthy spell of cold temperatures. But the current forecast is for a mild winter in Europe and the US. If it turns out to be true, bulging stock levels will add further pressure and oil market bears may choose not to hibernate.                            .