- Oil futures prices declined in April on seasonally weaker demand. Brent fell by around $6.10/bbl to $103.40/bbl amid a surplus of light, sweet grades in Europe, and last traded nearly unchanged at $103.10/bbl. In contrast, WTI inched down by just $0.90/bbl to an average $92.05/bbl, and by early May bounced back up to $95.50/bbl.
- The WTI-Brent futures price spread fell to its narrowest in more than two years, contracting to about $7.75/bbl in early May from an average $11.35/bbl in April, $16.58/bbl in March and $20.75/bbl in February.
- The global oil demand forecast was raised by a marginal 65 kb/d for 2013, to 90.6 mb/d, due mainly to upward revisions to German gasoil data for 2012. The global growth forecast is unchanged at 795 kb/d.
- The non-OPEC supply forecast was raised by 50 kb/d to 54.5 mb/d for 2013 on rebounding output in South Sudan and strong North American oil sands and tight oil production. Annual growth remains projected at 1.1 mb/d after US and Australia data revisions raised the 2012 estimate by 0.1 mb/d.
- OPEC crude production rose by 200 kb/d to 30.70 mb/d in April, led by Iraq. The 'call on OPEC crude and stock change' for 2Q13 fell by 400 kb/d to 28.9 mb/d on higher OPEC NGLs and non-OPEC supplies. OPEC ministers gather in Vienna on 31 May to review the market outlook.
- OECD commercial oil stocks built by a counter-seasonal 14.9 mb in March, to 2 658 mb, after a steep Japanese build helped lift crude stocks by 32.4 mb. On a forward-cover basis, OECD product stocks fell by 0.6 day, to 31.2 days. Preliminary data suggest total oil stocks built by a further 27.7 mb in April.
- Global refinery runs will jump by an unusually steep 3.6 mb/d from April - the likely peak in seasonal maintenance - to August, thanks in part to new Saudi capacity and recovering throughput at Venezuela's Amuay plant after a 2012 fire. March runs exceeded expectations, following strong February margins and a Brent price dip.
A pivotal time in oil markets
This month's OMR is abbreviated - tables only - due to the simultaneous release of the 2013 Medium-Term Oil Market Report (MTOMR), the IEA's oil market outlook to 2018. Subscribers can access online a complete set of accompanying MODS statistics. The OMR will return to its regular format next month.
Editorial policy, rather than an unexpected shift in oil market conditions, is the main reason the 2012 and 2013 editions of the MTOMR are coming out in such close succession. Since the 2012 MTOMR was released seven months ago, the IEA has adjusted its publication schedule to make its various medium-term reports more easily comparable. Five-year outlooks on natural gas and renewable energy will soon follow this MTOMR, all sharing similar GDP and other assumptions. Later this year, the IEA will for the first time release a medium-term report on energy efficiency, along with the medium-term coal report.
Nevertheless, this month offers a perfect vantage point from which to take a fresh look at the medium-term. Many of the trends flagged last October have since come out in full force. On the supply side, recent shifts in benchmark prices hint at the shockwaves sent by surging North American supply through global oil markets. After stretching to 2012 peaks of around -$25.50/bbl in November, the WTI- Brent futures price spread contracted in early May to its narrowest in more than two years, to around -$7.75/bbl in early May, from a -$11.35/bbl average in April, -$16.58/bbl in March and -$20.75/bbl in February. This return to spread levels unseen since January 2011, when surging US light, tight oil production first started bumping against takeaway limits, comes amid significant infrastructure adjustments. Those include new rail capacity out of the Midwest, adjustments in pipeline capacity to relieve congestion in and around Cushing, Oklahoma, and Midwestern refinery upgrades to run more imported heavy Canadian crude.
Meanwhile, WTI futures remain in backwardation, with prompt prices at a premium to outer months, signalling market expectations of lower prices down the road. This is far from the end of the chain reaction. North American production is expected to continue growing at a record pace. As it keeps expanding its reach, supply-side pressures will spread to coastal grades; backed out US crude imports will be looking for other markets.
Other shifts compound the impact of these shockwaves. For the first time this quarter, oil demand in developing and emerging economies is forecast to exceed that in the OECD. Yet as refining capacity rises even faster than demand in non-OECD economies, excess non-OECD product output is also looking for markets. Net Chinese gasoil exports are on the rise, even as US net product exports hit records. Rising Middle Eastern exports will soon follow suit. As those changes unfold, they are transforming the very way in which products are reaching consumers from the wellhead. This sort of positive crude and product "supply shock" could prove as transformative for the oil industry as was the rise of Chinese demand during the last 15 years.
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 July 2007, 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 ?500 kb/d for non-OPEC as a whole, with downward adjustments focused in the OECD.