- Average May futures prices of $101.36/bbl (WTI) and $114.52/bbl (Brent) were around $8.50/bbl lower than April, after a widespread commodity sell-off in early May. Since the 8 June OPEC meeting, crude prices have recovered to $118/bbl for Brent, with WTI remaining relatively weak at around $98/bbl.
- Global oil demand for 2010 and 2011 is raised by 0.1 mb/d on average, largely on non-OECD baseline revisions. Estimates now stand at 88.0 mb/d in 2010 (+2.8 mb/d year-on-year), and 89.3 mb/d in 2011 (+1.3 mb/d). Weaker OECD readings reflect slower economic activity, high prices and a mild spring, while stronger non-OECD estimates derive from reappraised gasoil use in India and China.
- Global oil supply rose by 270 kb/d in May to 87.41 mb/d, with OPEC crude underpinning the rise. Non-OPEC supply growth in 2011 is now +560 kb/d, half of 2010 levels. Revisions to refinery processing gains cut 0.2 mb/d from 2008-2011 supply, and outages in the Americas, UK and Yemen shave another 0.2 mb/d off 2011.
- OPEC May crude supply rose by 210 kb/d to average 29.18 mb/d, but remains 1.25 mb/d below pre-Libyan crisis levels. Increases from Saudi Arabia, Nigeria, Kuwait and Iraq offset lower UAE and Angolan output. Effective spare capacity stands at 4.01 mb/d. The 2011 'call on OPEC crude and stock change' is revised up by 0.4 mb/d to 30.1 mb/d, and increases by 1 mb/d between 2Q11 and 3Q11.
- April OECD industry stocks rose by a seasonally strong 34.5 mb, to 2 668 mb or 59.1 days of forward demand cover. Japanese restocking accounted for almost 75% of the increase. Preliminary data indicate OECD inventories built by a further 19.5 mb in May, but oil held in short-term floating storage, especially products, declined.
- Global refinery crude demand is expected to rise sharply from a low point of 72.6 mb/d in April to 76.4 mb/d in July as US and European refiners exit turnarounds and replenish depleted oil product stocks for peak summer demand. Global throughputs are estimated to add 2.5 mb/d between 2Q11 and 3Q11, reaching 76.1 mb/d on average.
Short and sweet
The June OMR this year is an abbreviated version of the normal report, coinciding with the release of Medium-Term Oil and Gas Markets (MTOGM) 2011 on 16 June. Readers will, however, find the majority of the usual statistical content in this OMR (alongside the release of a complete set of accompanying MODS statistics). The normal OMR format, with extensive written analysis, will resume in July, when we will also take our first detailed look at quarterly market fundamentals for 2012.
This month's report sees 2011 oil demand estimates hiked by around 0.1 mb/d, to 89.3 mb/d. This is partly the result of stronger baseline Indian demand, and also reflects potentially stronger 3Q11 Chinese gasoil demand amid widespread power shortages. Global demand growth for 2011, however, remains close to last month's estimate of 1.3 mb/d. On the supply side, a number of adjustments arise from our detailed MTOGM analysis curbing baseline non-OPEC supply, but raising the baseline for OPEC. Revisiting our global products supply model, refinery processing gains (which count towards non-OPEC supply) are trimmed by 0.2 mb/d. On top of this, temporary supply outages confronting production in the UK, US, Canada, Argentina, Yemen, Sudan and Kazakhstan cut a further 0.2 mb/d from the 2011 total. Baseline OPEC oil supplies, however, are revised up, by between 0.3-0.6 mb/d for 2007-2010, amid a re-evaluation of our Venezuelan supply methodology and higher NGL supplies. The rationale for the former is described in the MTOGM.
Looking ahead to the remainder of 2011, stronger Asian demand combined with weaker non-OPEC supply leaves the 'call on OPEC crude and stock change' for the year around 0.4 mb/d higher than in our last report. The 'call' now increases from 29.7 mb/d in 2Q11 to 30.7 mb/d in 3Q11, before dipping to 30.1 mb/d in 4Q11. With OPEC estimated to have produced 29.2 mb/d in May, there is a clear need for the organisation to boost supply as refining operations ramp up to help meet peak summer season demand (indeed OPEC's own monthly report has said very much the same, with an even higher estimate for the increase in the 3Q11 call).
Rather as we have kept the report 'short and sweet' this month, so the oil market for the rest of this year looks potentially short of sweet crude, should the Libyan crisis continue to keep those supplies restrained. OPEC's Ministerial meeting on 8 June surprised observers with no collective decision on production or target output levels. That of course does not mean OPEC supply will necessarily remain anchored at 29.2 mb/d. Indeed, there have been reassuring signs that Saudi Arabia and some other producers will rise to the challenge in the months ahead to help fill the gap left by the ongoing absence of Libyan supplies. Even if the quality match is not one-for-one, incremental and competitively priced OPEC barrels from whatever source could bring welcome relief. Without such positive developments, there is a risk of substantial further market tightening in coming months, with all the damaging implications that a resultant overheating in prices could hold for the global economy.
All world oil supply figures for May discussed in this report are IEA estimates. Estimates for OPEC countries, Alaska, Peru and Russia are supported by preliminary May supply data.
Note: Random events present downside risk to the non-OPEC production forecast contained in this report. These events can include accidents, unplanned or unannounced maintenance, technical problems, labour strikes, political unrest, guerrilla activity, wars and weather-related supply losses. Specific allowance has been made in the forecast for scheduled maintenance in all regions and for typical seasonal supply outages (including hurricane-related stoppages) in North America. In addition, from May 2011, a nationally allocated (but not field-specific) reliability adjustment has also been applied for the non-OPEC forecast to reflect a historical tendency for unexpected events to reduce actual supply compared with the initial forecast. This totals -200 kb/d for non-OPEC as a whole, with downward adjustments focused in the OECD.