Oil Market Report: 13 May 2015

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  • Oil prices rallied in April and early May despite persistently high global supply and continued stock builds. Slowing US LTO supplies pushed NYMEX WTI prices 14% higher in April vs. March, roughly twice the increase in ICE Brent. At the time of writing, NYMEX WTI was trading at about $60.30/bbl. ICE Brent was around $66.30/bbl.
  • Despite slowing US LTO output, global oil supply growth remained at a steep 3.2 mb/d year-on-year in April. At 95.7 mb/d, total oil supplies were flat from March as higher OPEC output offset a drop in non-OPEC. Non-OPEC supply growth for 2015 is projected at 830 kb/d, up by 200 kb/d since last month's Report.
  • OPEC crude supply rose by 160 kb/d to 31.21 mb/d in April - the highest since September 2012, and nearly 1.4 mb/d above a year earlier - as Iraq and Iran boosted output and top exporter Saudi Arabia held flows above 10 mb/d. Upward revisions to non-OPEC supply lower the call on OPEC by 0.3 mb/d for 2H15, to 30 mb/d.
  • Global oil demand growth is projected at 1.1 mb/d for 2015, to 93.6 mb/d, up from 0.7 mb/d in 2014. The forecast is unchanged since last month as an improving economic outlook for Europe and a cold winter lift projections of OECD demand but offset reduced expectations for the FSU, the Middle East and Latin America.
  • Global refinery crude runs are expected to dip seasonally to 77.8 mb/d in 2Q15, from 78.2 mb/d in 1Q15. Estimates for both 1Q15 and 2Q15 have been lifted markedly since last month's Report on robust runs in Asia and Europe. Annual gains, of 1.4 mb/d for both 1Q15 and 2Q15, largely shift to the non-OECD region in 2Q15.
  • OECD industry oil stocks rose counter-seasonally in March by 38.4 mb, led by US crude. Refined products meanwhile inched lower and by end-month covered 30.5 days of forward demand, level with a month earlier. Preliminary data indicate OECD stocks continued on an upward trend, building by 35.8 mb in April.

Standoff in the oil patch

In the supposed standoff between OPEC and US light tight oil (LTO), LTO appears to have blinked. Following months of cost cutting and a 60% plunge in the US rig count, the relentless rise in US supply seems to be finally abating. LTO production growth buckled last month, sending US crude output growth into reverse and bringing a multi-year winning streak to an apparent close. Inventories already feel the pinch. US crude stocks, the top source of recent OECD builds, posted their first weekly draw in 17 weeks at the end of April. Expectations that the market would start tightening by mid-year seem to be coming true - or so would have it the bulls who over the last month have given WTI crude a 14% price lift, and counting.

But that is only part of the story.

An end to US crude builds does not spell the end of all oil inventory increases. Not only does the latest US crude draw pale in comparison with the massive builds of the first quarter, but there are also signs that, even as crude builds slow, product stocks are picking up where crude has left off. US product stocks already built counter-seasonally in March - a month when China also posted record-high distillate builds. Preliminary data show OECD-wide product stocks stopped drawing and swung into growth in April. More such builds may follow as global demand goes through a seasonal soft patch and refining activity increases worldwide.

The slowdown in the LTO patch notwithstanding, global crude supply was up by a staggering 3.2 mb/d in April year-on-year, extending the first quarter's massive gains. While the price responsiveness of LTO was widely anticipated, the strong performance of some other sources of non-OPEC supply defied expectations. Russian oil companies seem to be coping exceptionally well with lower oil prices and international sanctions, thanks to a flexible tax regime that lightens their fiscal burden as prices drop and to steep cuts in production costs that came courtesy of the rouble's depreciation. Russian production jumped by a steep 185 kb/d year-on-year in April. For all its troubles, Brazil's Petrobras is also a supply success story of sorts. Even as its balance sheet problems curtail new spending, investments made long ago are finally paying off as one FPSO after another comes into production. Brazil output was up 17% year-on-year in the first quarter. Chinese production is also growing at a healthy clip, as is output from Viet Nam and Malaysia.  Meanwhile, last month's vigorous WTI price rebound is giving LTO producers a new lease on life. Several large LTO producers have been boasting of achieving large reductions in production costs in recent weeks. At the same time, producer hedging has reportedly gone steeply up, as companies took advantage of the rally to lock in profits.  

It would thus be premature to suggest that OPEC has won the battle for market share. The battle, rather, has just started. The move by the group's core Gulf members last November not to cut production in defence of prices was only the first step in a plan that includes actually ramping up output and aggressively investing in future production capacity - even as their non-OPEC counterparts keep tightening their belt. Bucking the global trend, Kuwait, Saudi Arabia and the UAE are all raising their rig count and expanding their drilling programs. Iraq and Libya, meanwhile, continue to raise production against all odds. And Iranian supplies hit their highest since July 2012, when international sanctions on Iran's crude exports came into effect, even as Tehran's ongoing talks with the P5+1 raise the possibility of its full return to international markets.

Recent signs of tightening in the US oil patch must be put into perspective. Amid continued political turmoil in the Middle East and North Africa, there is no lack of upside risk to prices - and downside risk to supply - in today's oil market. Given the central role of US LTO as a main source of projected incremental oil supply, a slowdown in LTO supply would certainly have a large impact on oil balances. But the rest of the oil patch is not standing still. As the market continues to rebalance, pockets of supply growth are emerging from unsuspected corners. Despite tentatively bullish signals in the US, and barring any unforeseen disruption elsewhere, the market's short-term fundamentals still look relatively loose.



  • Global oil demand growth of around 1.1 mb/d is forecast in 2015, taking average deliveries up to 93.6 mb/d, well up on 2014's 0.7 mb/d expansion. The main factor driving this acceleration is the reversal in OECD momentum, switching from a 460 kb/d decline in 2014 to a gain of 175 kb/d in 2015, consequential on an improvement in the OECD economic outlook and colder-than-year-earlier winter weather conditions in Europe in 1Q15.
  • Global demand growth gained momentum in recent months after bottoming out at a five-year low of 230 kb/d in 2Q14 and then accelerating steadily to reach 1 425 kb/d by 1Q15. The 2Q14 nadir coincided with declining economic activity in Japan and much of Europe. Upticks built as industrial and transportation fuel demand rose on escalating global economic growth; momentum peaked in 1Q15 on cold European weather.
  • The assessment of 1Q15 demand has been revised upwards by approximately 130 kb/d since last month's Report. Notable additions applied to China, Germany, Saudi Arabia and Turkey. The forecast for the year as a whole remains roughly unchanged on last month's Report, as offsetting curtailments to the outlooks for oil demand in the US and Brazil have been made on curbed macroeconomic expectations for these countries.
  • Changing macroeconomic outlooks have heavily influenced the geographic distribution of oil demand forecasts. Most notably the International Monetary Fund (IMF) in April's World Economic Outlook raised its 2015 forecasts for India, Europe and OECD Asia Oceania, but curtailed them for the OECD Americas, FSU, Middle East and Latin America.

Global Overview

The overall global demand forecast for 2015 remains roughly on a par with that carried in last month's Report, at +93.6 mb/d, 1.1 mb/d up on the year earlier, but the geographic distribution of projected demand has changed substantially consequential on the evolving outlook of economic growth. The IMF, in April, published a revised World Economic Outlook that still showed +3.5% global GDP growth in 2015, i.e. unchanged on its previous forecast, but with notable amendments in the make-up of this growth. The IMF now takes a much more upbeat stance on India, OECD Asia Oceania and Europe, while less optimistic macroeconomic outlooks are now cited for the economies of the US, Latin America and the Middle East; this Report outlines in detail how the oil demand forecasts were accordingly adjusted.

Simply looking at the annual data misses the dramatic changes that have occurred recently, with year-on-year (y-o-y) growth bottoming-out at a five-year low of 230 kb/d in 2Q14, before progressing steadily back to a one-and-a-half year high in 1Q15. The 2Q14 nadir occurred as near-recessionary conditions affected Europe and Japan, before recuperating up to 1 425 kb/d by 1Q15 as additional macroeconomic momentum coincided with generally lower prices and colder European 1Q15 winter weather conditions. Recent data show both transportation and industrial fuel deliveries rising strongly, with the likes of Germany, Saudi Arabia, Korea, India and Turkey all contributing sizeable gains. European demand particularly spiked in 1Q15, as colder conditions triggered extra space heating needs. The number of heating-degree-days, i.e. the number of degrees that a day's average temperature was below 18 degrees Celsius, carried a near 20% y-o-y premium in 1Q15 in Germany, France, the Netherlands and Spain.

Despite escalating up to around 1.4 mb/d in 1Q15, global oil demand growth is expected to ease over the remainder of 2015, as the positive stimuli from colder-than-year-earlier weather conditions eases alongside projections of plateauing economic growth. Many of the demand peaks that followed the mid-2014 slowdown were post-recessionary bounce-backs and, hence, are likely to ease as the year progresses. Over the remainder of 2015, y-o-y growth is forecast to average roughly 1.0 mb/d.

This month's Report includes notable data revisions for February and March, with upward February adjustments led by China (+190 kb/d), Saudi Arabia (+110 kb/d), Turkey (+105 kb/d), the UK (+65 kb/d) and Germany (+65 kb/d). These February additions more than offset some sizeable curtailments, including Russia (-110 kb/d), Chinese Taipei (-105 kb/d) and India (-75 kb/d). Net data revisions for March, based on preliminary statistics, were more closely matched, with upside adjustments to China (+95 kb/d), Korea (+55 kb/d), Germany (+50 kb/d) and Italy (+45 kb/d), roughly offsetting curtailments in India (-150 kb/d) and Russia (-120 kb/d).


Although generally remaining in the shadow of non-OECD demand, from a growth perspective, the relative discrepancy has eased recently as colder-than-year earlier weather conditions in many European countries provided an additional 1Q15 impetus alongside embryonic signs of a macroeconomic uptick. Having widened to a recent peak of 2.0 mb/d in 2Q14, the discrepancy between non-OECD and OECD growth subsided to an estimated 0.3 mb/d in 1Q15. This easing should reverse as the year progresses, back towards 1.1 mb/d by 4Q15, as relative macroeconomic conditions become less supportive of OECD demand, versus non-OECD, and the general tendency towards more efficient OECD energy usage is more entrenched. The recent upturn in OECD growth has been heavily concentrated on gasoil/diesel, as estimated deliveries rose by 4.1% on a y-o-y basis in 1Q15, to 13.5 mb/d, nearly four-times the average annual growth rate of the previous two years. Europe completely dominated this resurgence, as gasoil demand growth in Europe escalated to 7.1% y-o-y in 1Q15, as persistent currency declines strengthened industrial oil demand while space heating requirements surged on the much colder 1Q15 weather.


Rising by approximately 185 kb/d (or 0.8%) in 1Q15, demand in the OECD Americas continues to accelerate y-o-y, albeit to a lesser degree than previously foreseen, as escalating transportation fuel demand has supported near 2% y-o-y gains in both gasoline and jet/kerosene. Even this relative growth peak, the highest since 4Q13, is less than forecast last month on curbed macroeconomic progress. Predictions for average 2015 deliveries in the OECD Americas, of 24.2 mb/d, have accordingly been curtailed (-35 kb/d) on the weaker economic underpinnings. The US demand forecast, of 19.2 mb/d in 2015, has been revised down (-15 kb/d), as both inferior economic expectations and lower February-March demand numbers filter through. The IMF, in April's World Economic Outlook, published a renewed US GDP growth forecast of +3.1%, four-tenths of a percentage points below the previous (i.e. January) citation.

The latest official monthly data put total US deliveries at 19.4 mb/d in February, 2.1% (or 400 kb/d) up on the year earlier and 30 kb/d below the month earlier forecast. Strong gains in jet/kerosene, gasoil and LPG (includes ethane) led February's upside, as deliveries rose by 5.2%, 8.5% and 6.1%, respectively. LPG demand rose on additional petrochemical demand, with Williams Partner's restarting its Geismar, Louisiana plant. The biggest shock came from US gasoline, which contracted to 8.7 mb/d, 0.6% below year earlier levels. Previous reports, encouraged by plump US Energy Information Administration (EIA) weekly data, of a strongly rising US gasoline demand proved overdone. February's contraction arising despite reports from the US Federal Highway Administration that total US vehicle miles travelled continued to rise, +2.8% y-o-y in February.

Overall preliminary March demand estimates point towards a gentler 1.3% y-o-y gain in total US oil demand, to 18.8 mb/d, an increase closer to the overall forecast for the year as a whole (+1.0%), as macroeconomic momentum appeared to stall. Having enjoyed three quarters of sharply rising quarter-on-quarter (q-o-q) economic growth, the US economy barely grew at all in 1Q15, up by a seasonally adjusted annual rate of 0.2% according to US Bureau of Economic Analysis data. Such anaemic growth, alongside consumer confidence indicators such as the University of Michigan's falling to a four-month low in March, curb the demand outlook.

Sharp declines in Mexican power-sector oil usage saw total oil deliveries fall to 1.9 mb/d in March, 5.7% below the year earlier. Residual fuel oil demand eased to 70 kb/d in March, a near-halving compared to year earlier estimates. March statistics, from the Secretaria de Energie, confirmed the structural drop in fuel oil demand to be largely attributable to sharply reduced power sector oil usage, with an offsetting support seen in the quantities of natural gas used by the Mexican power sector (+29.8% y-o-y). The Mexican demand forecast for 2015 at 1.9 mb/d, equates to a 2.3% correction on the year earlier, curbed by 15 kb/d compared with last month's Report on a combination of a weaker-than-foreseen March demand estimate (35 kb/d lower) and less upbeat macroeconomic projections. The IMF's April World Economic Outlook alluding to 3.0% GDP growth in 2015, versus the IMF's 3.2% forecast published in January.


The strength of European demand was one of the dominant themes in oil markets in 1Q15, as deliveries averaged roughly 13.5 mb/d, up by 0.5 mb/d on the year earlier, gains largely attributable to gasoil. Although economic data is not yet widely available for Europe, a few constituent countries, such as Belgium and Austria, have published accelerating progress. Such additions, alongside strengthening business sentiment indicators, such as Markit's Manufacturing Purchasing Manager's Index (PMI), suggest that the 20% y-o-y reduction in the value of the euro against the US dollar has supported additional industrial oil demand. Up 3.9% y-o-y in 1Q15, the overall pace of European oil demand growth is not only at its strongest in nearly twenty years but it even exceeds the post-Great Recessionary bounce of mid-2010. Additional economic growth alone is unlikely to account for all of this rise, even with the supportive influence of lower retail prices seen since mid-2014. European oil demand growth gained extra momentum from the very much colder winter weather conditions seen in 1Q15. Compared to last month's Report the 1Q15 European demand estimate has been revised up by 185 kb/d, more than the entire global upgrade, with particular prevalent additions applied to the estimates of Turkish, Italian, German, French, British and Polish oil demand.

At 750 kb/d in February, the latest estimate of Turkish oil demand is 105 kb/d above the previous estimate, a revision based on a reclassification of large quantities of international aviation deliveries which had been previously misreported by Turkey as exports. The amended February estimate put Turkish jet/kerosene deliveries at roughly double the previously reported number. Efforts to adjust the historical jet/kerosene demand series have also been made, although impending official data revisions could further change the Turkish baseline. Specifically looking at February, strong gains in gasoil/diesel, naphtha and 'other products' further supported Turkish demand.

Resurgent gasoil/diesel and LPG (includes ethane) demand led the dramatic acceleration in total UK oil demand growth, which at +5.6% in February was the fastest pace of y-o-y growth in nearly a decade. Relatively strong business confidence, coupled with lower consumer prices since the middle of last year, buttressed UK deliveries. Markit's Manufacturing PMI at 54.0 in February was not only well above the 50-confidence threshold but also amounted to a seven-month peak, it has since risen to 54.4 in March. The forecast for the year as a whole is for a 1.4% gain in total UK oil deliveries, to an average of roughly 1.5 mb/d in 2015.

The French oil demand forecast for 2015, at 1.7 mb/d, has been raised marginally on a combination of higher-than-previously foreseen February-March delivery data and predictions of stronger economic growth. April's IMF World Economic Outlook, for example, cites 1.2% economic growth in 2015, three-tenths of a percentage point up on January's estimate. In March, the total French oil demand estimate is put at 1.7 mb/d, equivalent to a gain of 25 kb/d (or 1.4%) on the year earlier and 25 kb/d above our prior forecast. Similarly, February deliveries have been revised up by 30 kb/d to 1.8 mb/d, 65 kb/d (or 3.6%) up on the year earlier.

Significant upside revisions have also been applied to the German demand forecast for 2015, which is projected to average 2.4 mb/d, 35 kb/d more than forecast in last month's Report. Both upwardly revised February-March delivery data and stronger macroeconomic projections have underpinned this upside revision. Officially confirmed February data, for example, showed German oil product demand at 2.5 mb/d, 65 kb/d up on the prior forecast and 245 kb/d (10.7%) above the year earlier. Very strong gasoil demand led February's upside, supported by resilient LPG and naphtha deliveries, as much colder weather conditions, relatively cheaper product prices and additional economic activity raised demand. This year's colder weather encapsulated in estimates of one-third more 'heating degree days' in February, one-quarter more in March.  Preliminary estimates of March demand at 2.5 mb/d, show a more modest 0.8% y-o-y gain but even this carried an upwards premium of 50 kb/d. The IMF, in April, outlined a German economic growth forecast of 1.6% in 2015, three-tenths of a percentage point above their prior forecast.

Asia Oceania

The long falling demand trend of OECD Asia Oceania continued into 1Q15 but at a very much reduced rate, as both Japanese declines eased and the strong recent gains seen in Korea and New Zealand continued. For the year as a whole, sharp declines in residual fuel oil and 'other product' demand offset gains in naphtha, jet/kerosene and gasoline.

Much stronger than anticipated 'other product' demand, in both February and March, played a key role underpinning the upwardly revised Japanese demand estimates. Although both numbers still hold heavy discounts to the year earlier, the respective y-o-y decline rates of total Japanese oil demand, at -2.5% and -6.6%, were heavily reduced (previously -5.4% and -7.9%, respectively). Higher February-March estimates, coupled with a now mildly more bullish outlook for the economy in general, contributed towards the upwardly revised 2015 Japanese demand estimate of 4.2 mb/d, 20 kb/d above the previous forecast and amounting to a 115 kb/d contraction on 2014 (or -2.7%). The IMF, in April, revised its forecast of Japanese economic growth to 1.0% for 2015, four-tenths of a percentage point above the previous estimate. The decline rate in 'other product' demand eased, February-March, as gas use also fell, the Federation of Electric Power Companies of Japan reporting a 2% y-o-y decline in liquefied natural gas consumption in March.

At 2.4 mb/d in March, Korean oil demand posted its third consecutive month of plus 4% y-o-y demand growth, as three months of double digit percentage point y-o-y gains in gasoil/diesel demand lifted the overall Korean data. Despite the recent Korean oil demand strength, for the year as a whole a still fairly muted 1.5% growth forecast is carried, to a 2.4 mb/d average, as forward looking macroeconomic indicators point towards a slowdown in momentum ahead. For example, HSBC's Manufacturing Purchasing Managers' Index (PMI), which is often used to express confidence in the manufacturing sector six-months ahead, fell to a four-month low of 49.2 in March, notably below the key 50-threshold that signifies the break-even point between net business 'optimism'/'pessimism'.


Recent months have seen a continuation of the decelerating non-OECD oil demand trend, with each consecutive quarter since 1Q14 seeing either lower or unchanged y-o-y demand growth through 1Q15. From the 2.6% y-o-y gain posted in 1Q14, non-OECD y-o-y oil demand growth has slowed steadily, through to an estimated +1.9% in 1Q15. Initially, decelerating industrial fuel demand growth was the main protagonist, with ailing gasoil/diesel and residual fuel oil demand seen. Non-OECD naphtha demand then started to slow from 3Q14, before contracting on a y-o-y basis, 4Q14-1Q15, as both Russian and Indian naphtha demand saw shrinkages alongside weak Chinese and Brazilian deliveries. Having peaked, at +5.1% y-o-y in 2Q14, non-OECD jet/kerosene demand growth has also slowed in recent quarters, easing respectively to +3.7%, +2.6% and +2.2% respectively 3Q14-1Q15. Decelerating non-OECD jet/kerosene demand growth occurred as many non-OECD oil-export dependent countries, such as Russia, Brazil and Saudi Arabia, have endured dramatic decelerations/corrections in growth.


With refinery runs up sharply in March, the Chinese apparent demand estimate was raised to 10.7 mb/d, 515 kb/d above the year earlier and 95 kb/d over the previous forecast. Record refinery throughput numbers, according to the National Bureau of Statistics (NBS), alongside mildly positive net product imports underpinned rising Chinese demand. Curbing these otherwise overwhelming upside supports were reports, from China Oil Gas and Petrochemicals, of a hefty product stock-build of 465 kb/d, March over February, notably gasoil/diesel and gasoline.

Gasoline and LPG provided the greatest upside support to demand in March, more than offsetting weak/declining conditions in fuel oil. Estimated LPG deliveries rose sharply as additional propane dehydrogenation units came on-line. Transportation fuels generally maintained their recent strength, as both consumer confidence and car purchasing trends remain robust in March. NBS's consumer confidence index, at 107.1 in March, was substantially above the key 100-'optimism'-threshold. Total Chinese vehicle sales came in at 2.2 million vehicles in March, roughly 10% up on the year earlier. Still somewhat supressing industrial fuel use, however, have been weakness in the manufacturing sector with indicators of sentiment such as HSBC's Manufacturing PMI below the key 'pessimism' threshold in March.

The late release of official customs data for January-February, a consequence of the extended Lunar New Year holiday in China, contributed to some notable historical data revisions. Approximately 125 kb/d was trimmed from the January estimate, to 10.3 mb/d, due to lower-than-previously-forecast net product import numbers, with 190 kb/d added to the February estimate, to 10.3 mb/d, on converse trade-adjustments. Overall, growth in the Chinese economy eased to a six-year low of 7% in 1Q15, down from 7.3% in 4Q14, with the IMF's April World Economic Outlook citing 6.8% as its forecast for the year as a whole, after rising 7.4% in 2014. Even such estimates might exaggerate the true pace of underlying economic progress, as oft-quoted potential economic bellwethers, such as the electricity generation numbers, show y-o-y declines (-3.7% y-o-y in March). Regardless, with this weakening in the macroeconomic outlook, coupled with projections of tightening environmental controls and Beijing's decision to reorient the economy away from energy intensive manufacturing/exports, no more than 0.3 mb/d growth is forecast for Chinese oil demand, taking average deliveries up to around 10.7 mb/d in 2015. Gasoline, jet/kerosene, LPG and naphtha are forecast to lead the upside in 2015, outpacing weak/falling gasoil and residual fuel oil demand. Looking further out, Sinopec Chairman Fu Chengyu was recently quoted as stating that Chinese diesel demand would peak in 2017, while he expects gasoline demand to continue growing for a further decade.

Other Non-OECD

Garnering support from its exceptionally strong February data release, the forecast of average Hong Kong deliveries for 2015 has been raised to 375 kb/d, 3% up on the year earlier. Very strong gains in gasoil/diesel, residual fuel oil (reflecting strong bunker fuel demand) and jet/kerosene deliveries underpinned February upside, leaving the overall metric up nearly 13% on the year earlier.

Growth in Indian demand eased back sharply in March, to +2% y-o-y, a significant deceleration from February's recent 30-month peak, as subdued agricultural demand dampened gasoil/diesel deliveries. Indeed, gasoil deliveries in March posted their first y-o-y fall in five months, down 3.4% to 1.4 mb/d, contributing towards a new overall Indian March demand estimate of 4.1 mb/d, 150 kb/d less than previously forecast. Despite this downwards adjustment, the forecast of total Indian oil demand in 2015 has been modestly revised up, to 4.0 mb/d, a gain of 5% on the year (previously 4.9%), as the macroeconomic numbers that underpin the forecast are revised up. The IMF, in April's World Economic Outlook, added 1.2 percentage points to its 2015 GDP growth forecast, versus January, to +7.5% citing "benefit(s) from recent policy reforms, a consequent pickup in investment, and lower oil prices."

Much weaker than previously foreseen naphtha demand reduced the total February demand estimate for Chinese Taipei to 940 kb/d, 105 kb/d below the prior forecast. Water shortages/rationing curbed output from the country's large petrochemical sector. The Central Weather Bureau reported average rainfalls between 4Q14 and 1Q15 at their lowest level since records began, back in 1947. Naphtha demand is likely to remain muted, 1Q15-2Q15, as the Central Emergency Operation Centre raised the potential water-reduction on big industrial users to 10% on 15 April, from 7.5% previously.

Russia's recent macroeconomic malaise notably filtered through into a substantially reduced demand estimate for March, 5% below the year earlier level, as economic headwinds prove more than sufficient to offset any additional military demand. Business confidence indicators, such as the Federal State Statistics Service's at minus-six in March where any reading below zero implies net 'pessimism', and Markit's Manufacturing PMI at 48.1 in March, clearly allude to the depressed macroeconomic situation. Russian demand is forecast to average 3.5 mb/d in 2015, 5.1% down on the year. The IMF's April World Economic Outlook reduced its 2015 Russian GDP forecast to -3.8%, as "falling oil prices and international sanctions have compounded the country's underlying structural weakness and have undermined confidence, resulting in significant depreciation of the ruble."

Curbed macroeconomic forecasts for Brazil, coupled with confirmation of weak February deliveries curbed the associated demand forecast. The IMF's April World Economic Outlook pared the Brazilian GDP growth forecast to -1.0% in 2015, a first absolute decline in six years. The latest official data for February, meanwhile, incorporates a near 4% contraction in Brazilian oil deliveries over the year earlier. Diesel deliveries fell heavily in February, a consequence of weakening industrial activity, latest Instituto Brasileiro de Geografia e Estatistica data including a 9.1% y-o-y contraction in industrial output in February. The US National Oceanic and Atmospheric Administration reported a large precipitation deficit, February-April, potentially damaging oil demand prospects as curbed macroeconomic activity exceeds the normal drought-premium for oil demand. Hydroelectric capacities traditionally make up 80% of domestic Brazilian power supplies, but in times of drought alternatives such as oil fill the void. In March, however, other alternatives saw notable upticks, with the Ministerio de Minas e Energia reporting that the share of total Brazilian power generated by biomass, for example, rose to 9.2% and wind 4.2% (previously 0.9% and 2.8%, respectively, in February).  

At a revised 3.1 mb/d in February, the latest estimate of Saudi Arabian oil demand carries a 6.8% premium over the year earlier. Robust gains across all of the main transport fuels underpinned heady Saudi Arabian demand, with overall y-o-y growth not having dipped below 3% since late 2013. For the year as a whole, total demand is forecast to average 3.3 mb/d, roughly 3.6% (or 115 kb/d) up on the year earlier. This relative easing, from January-February's average 6.6% y-o-y gain, occurs as macroeconomic momentum likely eases. The IMF, in April, published a revised 2015 GDP growth forecast for Saudi Arabia of +3.0%, roughly six-tenths of a percentage point below 2014's 3.6% gain.



  • OPEC crude supply rose by 160 kb/d to 31.21 mb/d in April - the highest since September 2012 - as Iraq and Iran boosted output and top exporter Saudi Arabia held flows above 10 mb/d for a second month running. April marked the 12th consecutive month in which production ran above OPEC's 30 mb/d supply target. Production is up nearly 1.4 mb/d on the year before.
  • Early soundings suggest that OPEC will sustain rates at 31 mb/d during May. Such sustained high OPEC production comes against the background of a downwardly revised 'call on OPEC crude and stock change' for 2015, now estimated at 29.2 mb/d, or 300 kb/d below the estimate in last month's Report - a result of upward adjustments to the forecast of non-OPEC supply. Despite being trimmed by 300 kb/d, the 2H15 'call' remains, at 30 mb/d, at the group's official production ceiling, albeit below current supply levels.
  • Iran's production climbed 90 kb/d to 2.88 mb/d in April, the highest level since 2012, as India returned to buy. Ship trackers say exports may have surged by as much as 400 kb/d to 1.3 mb/d in April. How much of that volume came out of floating storage is unclear. In contrast, Iranian crude deliveries to consuming countries edged down by roughly 100 kb/d on the month.
  • Global supply was unchanged in April from a month earlier, at 95.7 mb/d, as a 260 kb/d decline in total non-OPEC output offset higher OPEC crude and NGL production. Total oil supply growth remained at a remarkably strong 3.2 mb/d compared with the previous year, easing only slightly from March's high, with gains roughly evenly split between OPEC and non-OPEC.
  • The 2015 forecast for non-OPEC supply growth has been lifted by 200 kb/d since last month's Report, on surprisingly strong output in 1Q15 for a number of countries including Russia, China, Colombia, Vietnam and Malaysia. Non-OPEC supply growth is nevertheless expected to ease from an astounding 2.2 mb/d in 1Q15, taking total non-OPEC supplies up 830 kb/d for the year as a whole.
  • Non-OPEC production is estimated to have slipped 260 kb/d in April month-on-month, to 57.9 mb/d, on lower output in North America. The most recent data for the US indicate output growth stalled in April, while Canadian and Mexican production are pegged lower on scheduled and unscheduled outages. A seasonal rise in global biofuels output provided a partial offset.

All world oil supply data for April discussed in this report are IEA estimates. Estimates for OPEC countries, Alaska, Mexico and Russia are supported by preliminary April supply data.

OPEC crude oil supply

OPEC crude oil output continued on its upward climb in April, inching up by an estimated 160 kb/d after soaring by an upwardly revised 960 kb/d in March. The latest increase took OPEC's April supply to 31.21 mb/d - the highest since September 2012 - as Iraq and Iran boosted output and top exporter Saudi Arabia held flows above 10 mb/d for a second month running. April marked the 12th consecutive month in which production ran above OPEC's 30 mb/d supply target. Production is up nearly 1.4 mb/d on the year before.

Early soundings suggest that OPEC will sustain rates at near 31 mb/d during May, extending the lofty production levels of the previous two months. OPEC's core Gulf producers - led by Saudi Arabia - are sticking with their defence of market share ahead of a scheduled 5 June OPEC meeting. Such sustained, high production comes even as upwardly revised estimates of non-OPEC supply growth have trimmed the 'call on OPEC and stock change' by 300 kb/d for 2H2015.

Not only are Gulf producers signalling steadfastness in their defence of market share today, but they are also making a show of hiking their investments in future production capacity, ostensibly bucking the belt-tightening trend of most of their non-OPEC counterparts. "While oil companies around the world are cutting capital and downsizing their investment programs, Saudi Aramco continues to take a long-term view", Chairman Khalid al-Falih was quoted as saying during a recent trip to China. OPEC Gulf producers Kuwait and the UAE are following suit. According to reports by Baker Hughes and others, Saudi Aramco, Abu Dhabi National Oil Company (Adnoc) and Kuwait Petroleum are all using a record number of drilling rigs, increasing supply and boosting investment in oil exploration and production, even as international oil companies (IOCs) slash their budgets and put projects on hold. Saudi Arabia, the UAE and Kuwait combined are producing at the highest rate in at least three decades. Iran and Iraq are also hiking supply, with Iranian April output at its strongest since July 2012 - when current international oil sanctions against its crude exports first came into effect - and Iraqi production ramping up to a new post-1979 high.

OPEC's 'effective' spare capacity was estimated at 2.55 mb/d in April, up slightly from 2.42 mb/d in March, with Saudi Arabia accounting for nearly 90% of the surplus.

Crude oil supply from Saudi Arabia dipped by 90 kb/d to 10.1 mb/d in April from an upwardly revised 10.19 mb/d in March, but remained in excess of 10 mb/d for the second month running, confirming that Riyadh is intent on maintaining its policy to preserve its market share. Oil Minister Ali al-Naimi, who survived a Cabinet reshuffle on 29 April, said earlier that Saudi oil fields would continue at around 10 mb/d after reaching a high of 10.3 mb/d in March. Output from the Neutral Zone shared by Saudi Arabia and Kuwait has slipped by about 100 kb/d with the taps turned down at the Wafra field.

Preliminary tanker tracking data showed Saudi crude exports dipping to roughly 7.16 mb/d in April - a drop of around 750 kb/d on the previous month's upwardly revised 7.91 mb/d high. Riyadh has been directing much of its crude shipments towards Asia, where demand for its crude has been stronger than anticipated, industry sources said. In early May, Saudi Aramco kept its monthly formula price for its Arab Light crude grade to Asia unchanged but cut those for Arab Super Light and Arab Extra Light, reversing two consecutive months of increases. In contrast, Aramco raised official selling prices (OSPs) to Europe and the US. OSPs for Arab Light, Arab Medium and Arab Heavy lifting in June and bound for the US were raised by 10-20 cents/bbl from May levels, while those for crude delivered in Northwest Europe went up by $1.10-$1.40/bbl.

Saudi Arabia's Gulf allies Kuwait, Qatar and the UAE kept their crude output about flat in April, with Qatar production inching up by a marginal 10 kb/d and Kuwaiti and UAE supplies unchanged. In the latter, Japan's Inpex was awarded a 5% stake in the restructured Abu Dhabi Company for Onshore Petroleum Operations (ADCO). France's Total had earlier received a 10% share. With Abu Dhabi National Oil Company (ADNOC) retaining 60% of ADCO, 25% of the concession remain up for grabs. ADCO's 1.6 mb/d production capacity is slated to reach 1.8 mb/d in 2017, bringing Inpex and Total's equity production of high-quality Murban crude from 80 kb/d and 160 kb/d to 90 kb/d and 180 kb/d, respectively.

Kuwait managed to keep production flat in April despite falling output from the Neutral Zone it shares with Saudi Arabia, a result of a lingering dispute between the two countries. Saudi Arabia Chevron, operator of Saudi Arabia's 50% share of the Neutral Zone, reportedly advised its Kuwaiti partner, Kuwait Gulf Oil Co., to shut down all joint operations at the 200 kb/d Wafra field by early May, invoking difficulties in securing work permits and materials.  The Neutral Zone's jointly operated Khafji field was shut in October 2014, ostensibly due to Saudi environmental concerns.

Iran's production climbed 90 kb/d to 2.88 mb/d in April, the highest level since July 2012 - when US and EU sanctions on Iranian oil exports first took effect - as India returned to buy. Ship trackers say exports may have surged by as much as 400 kb/d to 1.3 mb/d in April, though how much of that volume came out of floating storage is unclear. Deliveries of Iranian crude to importing countries, on the other hand, dipped by close to 100 kb/d on the month, led by an aggregate plunge of nearly 300 kb/d in OECD countries - Japan, Korea and Turkey - compared to March's high. A partial offset was provided by gains in non-OECD imports, including India - which had briefly halted imports in March for the first time in more than 10 years - and Malaysia, which took receipt of Iranian barrels for the first time since September 2013. Chinese imports inched lower, while imports into Syria also declined from March highs.

Crude output from Iraq, including the Kurdistan Regional Government (KRG), ramped up to 3.8 mb/d in April, from 3.7 mb/d in March, a fresh post-1979 high. Exports of 3.077 mb/d in April also set a new record. The increase came from Iraq's northern exports to the Turkish port of Ceyhan, which rose to 450 kb/d in April, up from 268 kb/d in March.  In contrast, shipments from the South declined by 85 kb/d from March, to 2.627 mb/d. This seems not to be due to weather problems as often in the winter months, but because of delays in establishing adequate storage for the two blends "Basra Heavy" and "Basra Light" which are now expected to be marketed in June. Southern exports may therefore come back more strongly by mid-year.

Production from Libya remains volatile but bumped higher by 40 kb/d in April, reaching an average 520 kb/d for the month. Nigerian output inched up by 60 kb/d to 1.80 mb/d. That was offset by a 60 kb/d decline in Angola and a 10 kb/d dip in Algeria. Supply from OPEC's Latin American members inched up, with Venezuelan output gaining an estimated 40 kb/d and Ecuador remaining flat.

Non-OPEC overview

Non-OPEC oil production is estimated to have declined by 260 kb/d in April, to 57.9 mb/d, led lower by declines in Canadian and Mexican supplies, partly offset by a seasonal increase in global biofuels production. The most recent data indicated that that US supply growth is slowly abating, as reductions in capital expenditures and rig-count declines are starting to curb gains in LTO output.

Non-OPEC output growth has nevertheless been revised higher for 2015 on a year-on-year (y-o-y) basis, to 830 kb/d, on the back of remarkably strong recent production in a number of countries. Non-OPEC supply growth in 1Q15 remained surprisingly robust, at close to 2.2 mb/d, taking total non-OPEC production above 58 mb/d. North American producers accounted for the bulk of the increment, adding 1.6 mb/d, with Latin America adding another 0.4 mb/d to y-o-y gains. Brazilian output surged by nearly 17% in 1Q15, as new production facilities continued to ramp-up output. Russian oil production has also been stronger than anticipated so far this year, posting annual growth of 100 kb/d in 1Q15 and nearly 185 kb/d in April, when preliminary data indicate another month of record-high output. Recent data for China, Vietnam and Malaysia have also shown persistently strong growth, lifting the production outlook for these countries through the remainder of the year.


North America

US - April preliminary, Alaska actual, others estimated: Signs that US production growth has come to a halt are appearing, with both the US Energy Information Administration's latest weekly oil statistics and its most recent Drilling Productivity Report indicating that lower oil prices and capital expenditures, alongside continuous declines in the rig count, are starting to take a toll on output. While preliminary, both reports show US output declining in their most recent numbers. The Drilling Productivity Report, which covers the seven largest US shale plays, estimates growth tapering off in April and LTO output slipping almost 80 kb/d in May.

The drop in output is consistent with extended declines in drilling activity. The US rig count continued to fall through 8 May, with another 145 rigs taken out of service since the end of March. The latest Baker Hughes report shows total US oil rigs falling to 668 in early May, its lowest since September 2010, and nearly 60% below last October's peak of more than 1600 rigs. The Permian Basin shed 47 rigs (to 236), while Eagle Ford reduced its active oil rigs by 38 (to 86). The Williston Basin, which contains the giant Bakken formation, had 80 oil rigs working in early May, 17 fewer than at end-March. While continuing, the slide in the rig count nevertheless could be abating somewhat, with both the Permian and Williston Basins gaining one rig in the latest weeks.

Final February data, meanwhile, came in lower than expected, leading to a downward revision for that month of nearly 100 kb/d. At 9.2 mb/d, total US crude oil production was only 25 kb/d higher than in January. Natural gas liquids gained 120 kb/d - reversing January declines brought on by freezing temperatures. Output in all major LTO plays continued to rise, up by a combined 105 kb/d. Output in the Permian play was 40 kb/d higher, Eagle Ford rose by 30 kb/d, while Bakken gained some 20 kb/d. While LTO output continued to increase in March, the US EIA's Drilling Productivity Report estimates that supply from the Bakken, Eagle Ford and Niobrara plays started declining in April. Indeed, preliminary weekly EIA statistics confirm that US crude output started to decline in the second half of April, taking total US supplies for the month 25 kb/d lower , to 12.6 mb/d, and partially reversing March's 105 kb/d surge in total US liquids production. The EIA's Drilling Productivity Report indicates accelerated declines in May, with Eagle Ford seeing the steepest drops.

In contrast to the US onshore sector, output growth from the offshore is expected to continue apace in 2015 and 2016. While down slightly from January, February oil production in the Gulf of Mexico stood an impressive 125 kb/d above the same month a year earlier, at 1.5 mb/d. The start-up of Hess' Tubular Bells development in November 2014 and Chevron's Jack St. Malo in December is expected to add a combined 150 kb/d to supplies this year. Further gains will come from Anadarko's Lucius spar, which started operations in the Keathley Canyon Block 875 in January. The 80 kb/d platform took on additional production from Exxon's Hadrian South development late March. In April, US independent Llog Exploration started up its Delta House platform in Mississippi Canyon Block 254. The facility has a peak capacity of 100 kb/d and the company plans to ramp up output with eight wells tied in by the end of the year. Lastly, Chevron's Big Foot platform is due to start-up late in 2015, though that timeframe could shift as installation work has faced delays. Several other projects are due on line in 2016 and 2017.

Overall, the outlook for US crude oil production is largely unchanged from last month's Report at an average of 9.1 mb/d in 2015, an expected increase of 520 kb/d. Total liquids are set to expand by 670 kb/d, 30 kb/d less than in last month's Report.

Canada - February actual: Canada's total oil supplies edged higher in February, gaining more than 80 kb/d from a month earlier, to 4.6 mb/d. As in the US, month-on-month gains were concentrated in natural gas liquids, as output in January was adversely affected by cold temperatures. Crude and condensate output was 40 kb/d higher than in January, while mined synthetics slipped by 25 kb/d from the previous month.

Significant volumes of Canada's synthetic crude are expected to go offline in 2Q15, as four major upgrading facilities are planning maintenance. Canadian Oil Sands announced it would take its 100 kb/d Syncrude's Coker 8-3 offline for work in during this quarter, cutting the project's output by one third. The unit is expected to be out for around six weeks. Shell has announced it would perform maintenance on its 255 kb/d Scotford upgrader, while Suncor had scheduled turnarounds for its U1 and U2 upgraders, which have a combined capacity of 350 kb/d. 

Canadian National Resources (CNRL) announced in its latest financial report that its Horizon upgrader achieved record quarterly output of 134 kb/d in 1Q15, an increase of 19% from a year earlier and up 5% from 4Q14. Efforts to improve the stability of the extraction and upgrading process have resulted in both higher nameplate capacity and higher utilisation rates, the latter attaining 98% in 1Q15.

In all, Canadian oil supply is expected to grow by around 50 kb/d in 2015 to 4.3 mb/d, with Albertan bitumen production seeing the largest gains of around 70 kb/d compared with 2014. Synthetic crude oil output is forecast to inch 20 kb/d higher, while slightly lower conventional crude oil output provides a partial offset.

Mexico - March actual: Mexican oil production in March was largely unchanged from a month earlier, at 2.7 mb/d, as a small increase in natural gas liquids output offset modest declines in overall crude production. While less steep than the preceding two months, annual declines were extensive, with production down 155 kb/d from a year-earlier. Accelerated declines at the legacy Cantarell complex continued to weigh on production with output at the field slipping below the 300 kb/d mark in March. So far this year, Cantarell has been producing some 110 kb/d less than a year ago. At its peak in 2003-04 the field produced around 2.2 mb/d.

Output is forecast to have dipped further in April, after a deadly explosion at Pemex's Abkatun Permanente platform in the Gulf of Mexico on 1 April shut in offshore output. The platform is part of the Abkatun Pol Chuck (APC) system, which was producing over 300 kb/d prior to the outage, though the platform itself only produced around 40 kb/d according to a Pemex statement. During April, Pemex quickly launched a phased restart of production, re-establishing operations at two of the complex's platforms already on 5 April. A week later, the company announced production at the complex had recovered to 80% of its pre-accident level. The restart of the two platforms, Abkatun D and Abkatun Perforacion, restored output from three fields, Ixtal, Manik and Onel, which had a combined output of around 210 kb/d of oil and 197.1 million cubic feet per day of gas in January. The Abkatun Temporal processing platform also restarted operations in April. Pemex expects to reactivate wells that use pneumatic pumping in the Batab and Chuc fields by June, restoring an additional 30 kb/d of crude production.

North Sea

Total North Sea production was largely unchanged in April compared with a month earlier, at just over 3 mb/d. North Sea production is expected to drop sharply in May as field maintenance reduces output at a number of fields, including Brent, Forties and Ekofisk. Brent-Forties-Oseberg-Ekofisk (BFOE) May scheduled loadings dropped to 850 kb/d, from 960 kb/d in April. North Sea loading terminal Hound Point started a month-long planned maintenance in early May. The Hound Point jetty is the key VLCC loading berth for Forties, making long haul shipments to Asia more difficult.

Norway - February actual, March preliminary: Total oil output in Norway averaged 1.9 mb/d in February, unchanged from the previous month. Preliminary estimates published by Norway's Petroleum Directorate revealed that March output was only marginally higher. Technical problems reportedly reduced the output of Alvheim, Draugen , Grane and Gullfaks South, offsetting increases at Gudrun and Knarr. The Gudrun field, which was shut in February due to a gas leak was partially restarted on 24 March.

Not long after commissioning its North Sea Knarr oilfield in March, UK operator BG Group had to halt output after a shut-in caused a small fire on the project's floating production storage and offloading vessel (FPSO). The FSPO, which has a production capacity of 63 kb/d and storage capacity of some 800 thousand barrels, had been delayed from an initial target of 2013 due to weather related issues and a fire on board the FPSO last year. The field is estimated to hold around 80 million boe in gross recoverable reserves.

In mid-April, Norwegian energy minister Tord Lien officially opened the Valemon gas and condensate field in the North Sea. Condensates from the field will be piped to the nearby Kvitebjørn platform for processing and then shipped to Mongstad before reaching markets. Valemon condensate production is expected to add around 10 kb/d to liquids output in 2015 and reach peak production of around 20 kb/d in 2016. New field start-ups are expected to largely offset mature field decline on the Norwegian continental shelf in 2015, keeping total Norwegian oil production stable from 2014 levels, around 1.9 mb/d.

UK - January actual, February preliminary: Oil production on the UK shelf averaged 955 kb/d in January, up 20 kb/d from an upwardly revised December figure. The increase was largely accounted for by higher output in the Forties system, where the Franklin field climbed 10 kb/d from 22 kb/d a month earlier. Preliminary data for February show a steep drop in offshore output in that month, with total liquids declining 75 kb/d from a month earlier, to 840 kb/d, before rebounding in March. After posting annual gains of some 40 kb/d in January, preliminary February and March output declines took total UK liquids down by 50 kb/d y-o-y in 1Q15, to 930 kb/d. 

Asia Oceania

Australia - February actual: Most recent data available from the Australian Government's Department of Industry and Science through February show Australia's crude and condensate production falling by another 25 kb/d in February, after a similar monthly drop a month earlier. As such, crude and condensate production averaged 315 kb/d in the latest month, compared with 360 kb/d at end-2014. Natural gas liquids added another 60 kb/d to total Australian supply in February.

Australia's Van Gogh crude will likely return to market by the end of 2Q15, after a nearly 18-month hiatus. The FPSO Ningaloo Vision, which had been undergoing repair and rectification work in Singapore since early 2014, returned to Australia in March and operator Apache has announced production should resume in 2Q15. First oil from the nearby Coniston field is also expected in 2Q15. Including increased condensate production from the recently commissioned Gorgon gas field, total Australian oil production is estimated to increase to 450 kb/d in 2015, from 430 kb/d in 2014.


Latin America

Brazil - March actual:  Total oil output in Brazil declined by just under 20 kb/d in March, to 2.52 mb/d. Production in the Campos Basin fell 35 kb/d from February, despite a 10 kb/d increase in output from the Roncador field. Partly offsetting the decline, Santos Basin output continued to increase, with production surpassing 0.5 mb/d for the first time in March. Year-on-year gains of an impressive 220 kb/d came mostly from the Lula pre-salt field, which added another 20 kb/d to reach nearly 290 kb/d, up 140 kb/d from a year earlier. Other gains came from the Sapinhoá field, which started production in January 2013 and inched up 10 kb/d month-on-month to 153 kb/d, 90 kb/d above a year earlier.

On 22 April, Petrobras finally released its long overdue audited financial statement for 2014. However sobering the figures it contained may have appeared, the company's stock rallied after their publication, as the release cleared the way for Petrobras's return to capital markets. The company reported a 21.6 billion real ($8.8 billion) loss for the year, thanks in large part to write-downs and impairment charges, with 6.2 billion reals related to the ongoing corruption scandal.

While Petrobras is planning to release an updated five-year business plan in coming weeks, the company has already outlined plans to invest $29 billion this year and another $25 billion in 2016, down from $35 billion in 2014. While this budget is significantly lower than the original one, Petrobras will put 82% of spending into the upstream, letting the downstream take the brunt of the investment cuts.

In terms of near-term growth, Petrobras is planning to add one production unit this year: the Cidade Itaguai FPSO at the Iracema North pre-salt area, which includes the Lula field. Additional growth should come from FPSOs, which entered operations in 2014. Average field declines of around 10%, the decommissioning of the Marlim Sul FPSO at the end of December as well as operational problems in the Campos Basin along with the fallout from Petrobras' legal problems, nevertheless continue to depress the outlook for Brazil. Overall production is expected to average just over 2.5 mb/d in 2015, increasing approximately 150 kb/d on the year, with gains concentrated in the first half of the year, 20 kb/d more than carried in last month's Report.


China - March actual: With a lag of several months, China Oil Gas and Petrochemicals recently released updated oil production estimates through March. The data show Chinese oil output rising some 50 kb/d compared with a year earlier in 1Q15, on the back of a recovery in Penglai and other offshore fields. Penglai, China's biggest offshore oilfield, is a joint venture between China National Offshore Oil Corporation (CNOOC) and US Conoco Phillips. According to financial filings by the US company, total output from the field averaged around 75 kb/d in 2014, down from around 82 kb/d in 2013 and 150 kb/d produced prior to an important oil spill in 2011.

CNOOC meanwhile announced in its 1Q15 earnings report its crude and liquids production was 13% higher in 1Q15 than a year earlier, at 99.6 million barrels (1.1 mb/d), with the most significant increases in its domestic output and notably in the Bohai production area where the Penglai field is located.

Speaking at an industry event on 28 April, CNOOC chief geologist and executive vice president, Zhu Weilin, said CNOOC's target of 65 million tonnes of oil equivalent and gas produced in 2015 could be trimmed due to low oil prices. Zhu said the biggest problem for CNOOC now was production costs.

A revision to 4Q14 data lifted total 2014 Chinese production by 30 kb/d above earlier estimates to 4.2 mb/d in that year, nearly 50 kb/d higher than in 2013. Output is expected to remain largely stable in 2015, inching up another 30 kb/d.

Viet Nam - March Actual, April preliminary: According to a government estimate, Viet Nam's crude production reached 320 kb/d in April, up more than 7% from a year earlier. Actual March crude production was confirmed at 335 kb/d, up nearly 11% year-on-year. State oil company PetroVietnam announced in April it expects the country's crude oil production to dip in 2Q15 by 7.6% versus 1Q15, giving no reason for the decline. In all, Viet Nam's total oil production is set to average 340 kb/d in 2015, up 15 kb/d from 2014.

Malaysia - March Actual: According to the National Bank of Malaysia, Malaysian oil production averaged 690 kb/d in 1Q15, nearly 100 kb/d from a year earlier. Ramp up of production at the offshore Gumusut-Kakap field provided a boost to output. Production of the new Kimanis crude grade which started in late 2014 could reach 80-90 kb/d this year. According to field operator Royal Dutch Shell, the Kimanis crude, which is a medium sweet grade similar to Malaysia's Labuan crude, will be significantly curbed in summer with field maintenance planned for June and July.

Former Soviet Union

Russia - March actual, April preliminary: Despite sanctions and lower oil prices, Russian producers managed to maintain crude oil output near record levels through April, hovering around 10.7 mb/d since the start of the year. Including gas liquids, Russian output exceeded 11 mb/d in both March and April. So far this year, output has stood some 120 kb/d above the same period in 2014, with annual gains reaching an impressive 185 kb/d in April. As a result, the forecast of Russian production for 2015 has been raised slightly since last month's Report. Oil companies have so far been shielded from the drop in oil prices, both by the revised tax system and by a sharp rouble depreciation since mid-2014. The overall outlook for Russia remains negative for 2015, however, and we expect growth to taper off in the second half of the year as structural declines are exacerbated by Western sanctions targeting financing and technology needed to reverse declines and boost production for the year.

Final data for March show total output rose nearly 30 kb/d from February, to just over 11 mb/d, 130 kb/d higher than the previous year. Recently nationalised Bashneft and small independent producers posted the strongest growth, of 50 kb/d and a combined 100 kb/d, respectively. Total output by small independents rose to 1.1 mb/d. Preliminary data for April show even steeper annual gains of some 175 kb/d, again with small independents, Gazprom and Bashneft posting gains, offsetting declines at Rosneft, which continues to face production declines from its mature fields in western Siberia. The state giant said its Vankor field has reached a peak of 442 kb/d and will start declining next year. To offset the field decline, Rosneft is to start-up neighbouring Suzunskoye field, which is set to peak at 90 kb/d in 2018.

FSU net-exports remained relatively flat in March, exceeding 10 mb/d for a third consecutive month. At 10.15 mb/d, both crude and product volumes continue to remain well above year-earlier levels. Crude exports inched up by 50 kb/d to 6.65 mb/d with a 90 kb/d increase in the volumes shipped via Russia's Transneft network offsetting falls elsewhere. One of the largest increases was on flows through the Druzhba pipeline which hit 1.14 mb/d, their highest in nearly three years, as Germany, the Czech Republic and Hungary all upped deliveries. Preliminary export schedules indicate that crude volumes should rise further in the second quarter as refiners, especially in Russia, enter seasonal maintenance reducing domestic demand for crude. Baltic exports are expected to see the largest rise although the majority of the export volumes are destined for Primorsk rather than Ust Luga.

Russia's recent 'tax manoeuvre', which saw the realignment of export duties for light and heavy products, has had the effect of increasing the export of light, high-value products at the expense of fuel oil. Fuel oil exports fell for the third straight month with the export of the product now being far less profitable than crude, putting pressure on the margins of simple refiners with high fuel-oil yields. Meanwhile, shipments of middle and light distillates have surged, supported also by weak Russian demand. In particular, Russia has sharply increased kerosene exports, hitting 58 kb/d in March, up from 5-10 kb/d prior to the tax manoeuvre. Considering that the vast majority of the extra kerosene shipments came for Ust Luga, it is likely that these were destined for Northwest Europe. Looking forward, product exports are expected to fall from their lofty levels as Russian refiners enter seasonal maintenance, which is expected to see up to 400 kb/d taken off line.

OECD stocks


  • OECD commercial oil inventories defied seasonal trends to add 38.4 mb in March, a month where stocks have on average declined by 1.4 mb over the past five years. The relentless increase in US crude stocks drove the build in total holdings while refined product stocks inched lower and by end-month covered 30.5 days of forward demand, level with a month earlier.
  • While global supply and demand balances imply a 160 mb notional stock build in 1Q15, observed data suggest the gains were heavily skewed towards crude. A cold winter and a string of US refinery outages helped keep OECD product inventories in check. China bucked the OECD trend with a significant rise in product stocks.
  • Chinese product stocks built by 14.4 mb in March as refinery activity there hit a new record, boosting inventories of gasoil and gasoline. Gasoil inventories built seasonally by 37 mb over the first quarter to breach the 100 mb barrier for the first time by end-March amid reports of sluggish domestic demand and as exports remained low.
  • Recent data from the US EIA indicate that during the last week of April US crude stocks drew for the first time in 17 weeks during which time they have added an extraordinary 109 mb. Holdings fell as refinery throughputs ramped up, crude production plateaued and imports fell to their lowest in nearly a year.
  • Preliminary data indicate that OECD stocks have continued on an upward trend as they built by 35.8 mb in April. Crude stocks added an exceptionally steep 36.4 mb led by still-soaring US holdings while refined products arrested their recent draws and rose on increasing US throughputs and European runs remaining above year-earlier levels.

Global Overview

While data on non-OECD oil inventories are proverbially scarce, global supply and demand balances point to a steep build of more than 160 mb in global oil inventories during 1Q15 as production far exceeded consumption. Available data for the OECD and select non-OECD economies do shed some light on the composition and distribution of this implied stock build, however, and indicate that the vast majority of it - more than 130 mb - was in crude oil. In contrast, data for refined product inventories where available, did not provide any evidence of a significant build except in China, where they grew by 37 mb. OECD product holdings drew by 30 mb.

As noted in last month's Report, based on available data, the global crude inventory overhang appears largely confined to the world's two largest oil consumers, the US and China. In view of rising international product trade, however, refined product builds may be occurring in countries for which inventory data are less reliable or up-to-date, or are simply not readily available. US product exports in particular have been on the rise, compounding the effect of cold weather to draw domestic product stocks by 31 mb over the quarter. Product exports from Asia Oceania to non-OECD Asia have also been healthy, while European refiners recently got a boost from strong import demand from West Africa. Some of those exports may have ended up in storage in their country of destination.

There are also now signs that refined product inventories may have turned a corner; as OECD product holdings drew unseasonably weakly in March and then built by a steeper-than-average amount in April. Moreover, recent weekly data from the US Energy Information Administration (EIA) point to refined product stocks building along seasonal lines and with crude stocks there finally falling in the last week of April as refiners came back from maintenance. There is now the possibility that the crude overhang accumulated over the past few months may finally be turned into refined products.

OECD inventory position at end-March and revisions to preliminary data

OECD commercial oil inventories defied seasonal trends to add 38.4 mb in March, a month where stocks have on average declined by 1.4 mb over the past five years. By end-month, stocks stood at 2 767 mb, a surplus of 120 mb versus average levels, its widest since June 2009. As in previous months, surging US crude stocks (+33.6 mb) led total inventories upwards, as despite refiners ramping up throughputs, production continued to post impressive year-on-year growth. All told, total oil inventories in the OECD Americas added 32.0 mb, more than twice the build which has occurred over the past five years. European inventories also built counter-seasonally (+7.8 mb), boosted by crude stocks which rose by a steep 6.6 mb, while those in Asia Oceania slipped counter-seasonally by 1.5 mb.

OECD total product holdings have moved to a slight surplus - of 5.6 mb - versus average levels for the first time since January 2011. However, when stripping out 'other products', principally LPG and ethane which bypass the refinery system and have surged in tandem with soaring US natural gas production, they stand at a 26.2 mb deficit with middle distillate inventories standing 22 mb below average. Indeed, beside 'other products', only gasoline stands at a surplus (8.2 mb). On a days-of-forward-demand-cover basis, OECD total product inventories covered 30.5 days at end-march, flat with a month earlier.

OECD inventories were revised downwards by a slight 0.7 mb for February upon the receipt of more complete monthly data, with the OECD Americas accounting for most of the adjustments. North American crude inventories were lowered by 2.4 mb (with the cuts centred in the US). Considering the 3.9 mb upward revision to January data, the preliminary 1.7 mb stock draw for the month presented in last month's Report is now seen steeper at 6.2 mb.

Preliminary data for April indicate that OECD stocks have continued on an upward trend as they built by 35.8 mb as US crude stocks continued their almost relentless surge. Since this increase was steeper than the 23.5 mb average build for the month, the surplus of inventories widened to an astounding 110 mb at end-month. While crude stocks added an exceptionally steep 36.4 mb, refined products arrested their recent draws and rose by a steeper than average 2.5 mb as refiners in the US came back from maintenance and as European throughputs remained above year-earlier levels.

Recent OECD industry stock changes

OECD Americas

Following their seasonal February draw, commercial oil inventories in OECD Americas rebounded by a steep 32.0 mb in March. Since this build was eight times the 4.0 mb five-year average rise for the month, the region's surplus versus average levels widened to a record 163 mb from 135 mb one month earlier. Regional crude holdings continued to soar, as, despite refiners ramping up throughputs, US crude production remained 1.1 mb/d higher than a year earlier. Regional refined product holdings inched up counter-seasonally by 2.8 mb/d, their first monthly rise since end-2014. The build was largely driven by a steep, 9.5 mb gain in 'other products' (predominantly propane) as winter weather dissipated. Middle distillate inventories edged counter-seasonally higher by 1.9 mb, cutting their deficit to average levels to 7.3 mb, its narrowest since March 2012. By end-month, regional refined product holdings covered 29.1 days of forward demand, broadly flat with end-February.

Weekly data from the US EIA indicate that US crude inventories declined by 3.9 mb during the last week of April, bringing to a halt 17 consecutive weekly builds that saw 109 mb added between the beginning of January and the end of April. Those earlier builds reflected still-soaring domestic crude production and a dip in refinery throughputs, as seasonal plant maintenance, compounded by unplanned outages, took more than 1 mb/d of capacity taken off line at its peak. Weekly data now point to domestic production plateauing, while in April throughputs increased by over 550 kb/d and crude imports dropped to 6.5 mb/d, their lowest in nearly a year. Considering the expected ramping up of refinery activity over the summer months and dipping domestic crude production, this could see stocks reduce gradually, in line with seasonal trends, unless crude imports surge. By mid-April Cushing stocks began to draw as midcontinent refiners upped runs, by the beginning of May, they stood at 62 mb, approximately 87 % of capacity. As they drew this saw WTI firm at a faster rate than other global benchmark crudes.

The increase in crude stocks saw total US commercial oil inventories rise by 31.4 mb in April, approximately twice the seasonal average build for the month. NGLs and other feedstocks defied seasonal trends and drew by 3.4 mb while refined products inched up by 1.4 mb, boosted by 'other products' which increased seasonally by 9.0 mb while middle distillates edged up counter-seasonally by a further 1.7 mb. As refiners made the seasonal switch to summer-grade gasoline, winter-grade product was destocked which saw inventories slump by 10.5 mb.

OECD Europe

Despite rising counter-seasonally by 7.8 mb in March, European inventories continue to lag average levels, although the deficit stood at 25 mb by end-month, its narrowest for four years. A steep 6.6 mb rise in crude oil holdings drove total stocks higher. Considering that regional refinery throughputs remained 900 kb/d higher than year-earlier levels and that regional crude production remains in decline, this would suggest that imports remained strong with ship tracking data suggesting that imports from the Middle East were relatively high.

The high refinery activity, set against a backdrop of strong margins, saw refined products holdings inch up by 0.4 mb in a month when they have drawn on average by 9.6 mb over the past five years. All product categories bar motor gasoline posted builds, notably middle distillates climbed counter-seasonally by 2.7 mb. Anecdotal reports suggest that large quantities of gasoline have recently been shipped to the US Atlantic Coast and West Africa, helping pressure stocks downwards. Nonetheless, regional gasoline stocks stand at a 4 mb surplus to average levels while middle distillates are at a 14 mb deficit. At end-March, refined product inventories covered 38.7 days of forward demand, 0.3 days below end-February.

Data from Euroilstock indicate that European commercial inventories edged up counter-seasonally by 1.3 mb in April as refined product holdings remained flat month-on-month at a time when they would usually draw. It is likely that product stocks were buttressed by refinery throughputs, which despite falling month-on-month, remained 100 kb/d above-year earlier levels amid healthy margins. The strong refinery activity also saw crude stocks inch up by 1.3 mb, significantly less than the 6.0 mb five-year average draw.

OECD Asia Oceania

Commercial stocks in OECD Asia Oceania drew counter-seasonally by 1.5 mb in March, which saw their deficit versus the five-year average widen to 18 mb from 14 mb at end-February. Despite all product categories drawing, refined products only decreased by 3.2 mb, less than their 4.7 mb five-year average draw. By end-month, they covered 20.4 days, 0.4 days above end-February. NGLs and other feedstocks increased counter-seasonally by 0.6 mb. Despite refinery throughputs falling on the month, crude oil drew by 3.2 mb, although this was less than the 4.7 mb five-year average draw which suggests that imports remained high.

According to data from the Petroleum Association of Japan, commercial inventories in Japan built by a slim 3.1 mb in April (data cover the period to 25 April), less than half the average build for the month which saw their deficit versus the seasonal average widen to 23 mb from 19 mb one month earlier. Refined products built by 1.0 mb, significantly less than the 4.6 mb average build for the month amid reports of high exports to non-OECD Asia and Australia. All product categories bar 'other products' posted builds, NGLS and feedstocks inched up by 0.4 mb while crude oil holdings rose by 1.7 mb.

Recent developments in Singapore and China stocks

Data from China Oil, Gas and Petrochemicals (China OGP) indicate that Chinese commercial crude inventories (not including strategic stocks) slipped by an equivalent 5.4 mb in March as imports dropped month-on-month while refinery throughputs hit a new record of 10.5 mb/d. This strong refinery activity saw products add 14.4 mb over the month. Gasoil stocks broadly followed seasonal trends and posted their fourth consecutive monthly rise (+5.0 mb) to breach the 100 mb barrier for the first time while gasoline holdings rose by 5.0 mb on the month. Although Chinese refined product stocks traditionally build in the first quarter, this year the combined 37 mb increase has been particularly steep as refinery throughputs have remained well above year-earlier levels. Gasoil builds have been especially impressive set against a backdrop of sluggish domestic gasoil demand while exports have reportedly remained unprofitable with volumes remaining well below state-allocated quotas.

According to data from International Enterprise, land-based refined product stocks in Singapore built by 1.1 mb during April. Rising residual fuel inventories (+1.1 mb) boosted total stocks as despite anecdotal reports of strong bunkering activity as the premium for HSFO against cargo prices remained close to an 18-month low, extra supplies arrived from Europe and Russia attracted by an open arbitrage. Middle distillates holdings inched up by 0.3 mb over the month, although levels remained volatile as they soared by 2.6 mb in mid-month on arrivals from the Middle East, Chinese Taipei and Korea before falling back during late month after high exports to amongst others, Viet Nam, the Philippines and Sri Lanka. Gasoline stocks tempered the total stock build as they drew by 0.8 mb amid shipments to India and Australia.



  • Crude prices rallied in April and into early May despite signs of persistently high global supply and continued stock builds.   US marker grade WTI led the increase, with average gains of nearly 15% in April for front-month NYMEX futures contract versus March, roughly twice those in ICE Brent futures. At the time of writing, NYMEX WTI was trading at roughly $60.28/bbl. ICE Brent was around $66.30 /bbl.
  • Signs of a slowdown in US light tight oil supply likely helped spark the rally, although annual growth in non-OPEC supply as a whole remained exceptionally robust in recent months. Saudi Arabia's high-profile military engagement in Yemen's civil war, as well as higher official selling prices (OSPs) for Saudi crude destined for the US and Europe, may have contributed to the rally. Saudi Arabia cut its OSPs to Asia, however.
  • Even as spot product prices strengthened across the board with soaring gasoline prices particularly notable, surging feedstock prices saw cracks generally weaken. US Gulf cracks were hit as LLS strengthened against other benchmarks while in Europe the relative strength of Russian Urals versus Brent saw cracks in the Mediterranean tumble compared to those in Northwest Europe

Market overview

Oil prices trended higher month-on-month in April, reversing March's declines, despite signs of continued robust growth in global oil supply and extended inventory builds.  Gains in crude prices outpaced products.  Within the crude market itself, US benchmarks grades led the rally, with US WTI front-month futures appreciating by an average $6.78/bbl, or nearly 15%, in April, versus $4.20/bbl, or 7.4%, for front-month ICE Brent.  The rally extended into early May.  At the time of writing, NYMEX WTI traded at about $59/bbl, up from an average $54.63 in April and $47.85 in March.  Brent was around $64.50, up from $61.14 and $56.94 in April and March, respectively.

Several factors likely helped spark the rally, first and foremost were continued declines in the US rig count, signs that growth in US light, tight oil production is finally stalling in the wake of steep spending cuts, and, most recently, dips in weekly crude inventories at Cushing, Oklahoma and in the US as a whole. Other developments may have contributed. The market appeared to rally on news of Saudi Arabia's growing military involvement in the civil conflict in neighbouring Yemen, fuelling concerns about the safety of tanker traffic in the Bab al-Mandab, a critical choke point on the way from the Indian Ocean to the Suez Canal. The conflict also spurred worries about a potential proxy war between Tehran and Riyadh in Yemen and broader anxiety about political stability in the region. Saudi Aramco's move in early May to hike its pricing formulas for crude sold in the European and US markets may also have been interpreted by some market partici-pants as a sign of market tightening. Evidence that US supply fundamentals trumped all other market signals could be found in the stronger performance of US crude compared to other grades, clearly illustrated in the narrowing WTI discount versus Brent over the period. The WTI-Brent spread narrowed from -$9.09/bbl in March to $-6.51/bbl in April and was standing at $5.60 at the time of writing. 

The prevalence of US crude considerations in the rally could also be detected in the narrowing cracks and falling refining margins in the US, as well as in other markets.  Like crude prices, product prices rose in April and early May, but their gains lagged those of crude. NYMEX RBOB led the increase in product prices with average gains of just over $3/bbl, or 4%, in April. NYMEX No. 2 Heating Oil gained only $2.48 /bbl, or 3.3%. While the end of winter might have played a role in the weaker performance of the Heating Oil contract relative to other oil instruments, it should not be overstated. Heating demand is no longer a major prop under the futures contract under any circumstances: space heating demand for oil is structurally vanishing, as US homeowners increasingly convert to natural gas or electricity. That trend has only been accelerating with the development of the Marcellus shale gas formation, which has introduced gas-on-oil competition for space heating in one of heating oil's last remaining strongholds.

Finally, the perception of tightening US fundamentals has clearly affected the market's structure and the shape of the futures curve, with prompt futures trading at a narrowing discount relative to those further down the curve. Crude markets remain in contango - i.e., deferred barrels trade at a premium to prompt oil - but the contango is getting shallower. The trend is particularly pronounced in WTI futures: the WTI M1-M12 spread tightened from $8.54/bbl in early April to $3.95/bbl at the time of writing. In Brent futures, the same time spread went from $7.48/bbl to $4.64/bbl.  M1-M2 spreads in Brent WTI and Dubai also narrowed in recent weeks, with the WTI M1-M2 spread down to $0.96/bbl at the time of writing, compared to $0.77/bbl for Brent.

Financial markets

Market Activity

Funds' sentiment towards ICE Brent is on a growing bullish streak: unhedged long positions are at a new record-high and short positions have plummeted to pre-price crash levels. The long-to-short ratio, an indicator of overall funds' positioning, has climbed from 1.1 to above 2, meaning that for every future (and option-equivalent) contract sold by hedge funds, more than two are bought. Funds were more timid towards NYMEX WTI, although they showed optimism in April as the Cushing benchmark gained $10 /bbl on the month (See 'Crude prices').

Data compiled by the US Commodity Futures Trading Commission (CFTC) shows a steady inflow of fresh money in investment funds linked to WTI price index, suggesting that the lower price, after firstly diminishing the overall notional value of the funds, has then been attracting investors in expectation of a price rise. The US Oil Fund, the largest oil-based exchange-traded-fund, has exponentially grown its number of shares since the oil price crash halved its unit price, quadrupling its capitalization since November 2014.

Financial Regulation

US regulators, Commodity Futures Trading Commission (CFTC), and its EU counterparts are working towards harmonizing technical aspects of new financial rules concerning clearing. The European Securities and Markets Authorithy (ESMA) recognized ten non-EU clearing counter parties (CCPs) on April 29, in countries such as Australia, Japan, Hong Kong and Singapore, to be allowed to provide clearing services to trading venues based in the EU. The agency also published guidelines on the definition of derivative under its Market in Financial Instruments Directive (MiFID), to provide guidance until MiFID II comes into force in 2017.

Spot crude oil prices

Spot crude oil prices strengthened in April and into early May, led by US grades, on the perception of tightening US supply fundamentals sparked in part by signs of a slowdown in light, tight oil production growth. All crude grades posted gains, but WTI at Cushing and other US grades surged ahead of benchmarks and crude grades in most other markets. WTI gained $6.68/bbl or 14% in April, to average $54.46/bbl, about twice the percentage gain posted by North Sea Dated, Dubai or Tapis. While US grades raced ahead of the pack, WTI remained at a discount to most other benchmarks, albeit a narrowing one.  The rally continued into early May.

Several factors account for the relative strength of WTI, chief among them signs of a slowdown in light tight oil supply following steep drops in the US rig count and large spending cuts by producers. Slowing supply growth was compounded by the unwinding of seasonal refinery maintenance, with crude demand rising as plants started returning to service from turnarounds. As a result, the US Energy Information Administration reported a first US crude inventory draw for the week ending 1 May, bringing a protracted string of builds to a halt.

North American crude markets were even stronger than increased in WTI prices would suggest. Other regional grades, including Bakken and WCS, firmed versus WTI. Canadian crudes were particularly buoyant due to heavy maintenance on syncrude upgraders.

In Europe, Russian grade Urals gained $4.63/bbl or 8.4% in April, to average $59.44/bbl, a stronger percentage gain than Middle Eastern grade Dubai or North Sea Dated. Those gains were achieved despite record output and seasonally lower Russian refinery runs. As a result, refining margins in the Mediterranean, a key market for Urals, fell relative to those in Northwest Europe. Spot markets firmed in Asia too. The price of North Sea Forties delivered to Asia found support from the closure of the Hound Point VLCC jetty with lower loadings expected for May.

Spot product prices

Refined product cracks generally weakened in March as gains in marker crude prices outstripped those for refined products. Regional disparities were heavily dependent on feedstock prices, with US Gulf refiners being hit hard as LLS strengthened against other global benchmarks, while in Europe the relative strength of Russian Urals versus Brent saw cracks in the Mediterranean tumble compared to those in Northwest Europe.  Nonetheless, spot product prices firmed across the board with gasoline's strength in the US and Europe particularly impressive.

Gasoline was the star of the show in the US as spot prices rose by $6.69/bbl while cracks remained broadly flat on a monthly average basis despite soaring domestic crude prices. Meanwhile, export demand from West Africa reportedly remained high and even the mid-month return of a number of refiners from maintenance could not interrupt prices from rising.

Logistical bottlenecks continue to hinder the movement of product from the Gulf Coast to the Atlantic Coast. During April, spare capacity to ship product along the Colonial Pipeline was scarce while high freight rates for Jones Act tankers kept the arbitrage window to ship product to New York Harbour shut for most of the month. Accordingly, supply from Europe was drawn in, which saw spot prices there firm with cracks subsequently firming on a monthly average basis. Further upward momentum in Europe came from the shipment of product to West Africa with Nigeria in particular reportedly buying numerous cargoes. Asian spot gasoline prices also firmed on the back of a number of non-OECD refinery outages, while exports to the region from the US west coast dried up as the arbitrage window closed. Further strength came from high exports to Australia in the wake of refinery closures there. Nonetheless, on a monthly average basis, cracks in Singapore weakened by over $2/bbl as crude price gains weighed heavy.

Naphtha markets largely piggybacked gasoline as demand from gasoline blenders saw prices steadily firm over the month. Asian cracks managed to remain in positive territory during April on firm demand from the regional petrochemical industry where naphtha remains a significantly cheaper option than competing LPG. Meanwhile, cracks in Europe and the Middle East remained well above year earlier levels as these regions' refiners exported cargoes to Asia.

As winter weather ended in the Northern hemisphere and concern about supplies dissipated, gasoil markets returned to contango. Meanwhile, ULSD cracks in the US declined by a relatively steep $3.58/bbl as spot prices there posted the smallest monthly average price rises of all surveyed products in both absolute and percentage terms. In Europe, supply remained plentiful as cargoes arrived from the US and Russia which tempered price rises while cracks in the Mediterranean were hit harder by the relative strength of Urals compared to Brent.

Although tracking gasoil cracks and firming over the month, European jet kerosene prices posted the smallest price rises in both percentage and absolute terms there. It is likely that price gains were tempered by increased exports from Russia, with total kerosene exports from the country surging to 60 kb/d from close to zero previously. In Singapore, prices for kerosene, which is used a heating fuel in Asia, were tempered by sluggish aviation demand and the end of winter weather.

European residual fuel oil prices rebounded in April, as, despite a narrowing arbitrage to ship product eastwards, exports to Asia remained strong. Moreover, European prices closely tracked Asian prices but appear to have remained at a wide enough discount to encourage export. Considering the lack of alternative domestic uses for fuel oil in Europe following the recent introduction of more stringent bunker fuel regulations, European refiners appear to be targeting two markets - Asia (where it is used as a bunker fuel) and the US (where it is used as a refinery feedstock) - thus helping to prop up European prices.


Surveyed rates for crude carriers inched higher in April, with the exception of Suezmaxes. Very large crude carriers (VLCCs) on the benchmark Middle East Gulf - Asia route saw rates firm before falling back but on a monthly average basis remained above March as loadings from Saudi Arabia remained at elevated levels.

Rates for 130 Kt Suezmaxes leaving West Africa had a weak start of the month, but then gradually picked up as the lower rates attracted charterers to fix further forward into May. Aframaxes in the North Sea posted their highest rates year-to-date, finding support from sustained high Russian exports.

Product rates had an overall flat month except for the 37 Kt UK - US Atlantic Coast route, which came off from March peaks as the arbitrage to ship gasoline between Europe and the US East Coast narrowed, however it once again began to widen by early-May which saw freight costs increase accordingly. Rates for tankers on the 75 Kt Middle East Gulf - Japan route, carrying mostly naphtha, remained flat on the month in spite of growing activity, as vessel supply remained abundant.

Reversal of fortune: Asian crude importers go from premium to discount

On average, crude oil imports into OECD Asia Oceania cost $5/bbl less than for European OECD countries in February, as opposed to a typical Asian premium, official data collected by the IEA shows. This was the widest negative differential since March 2011, in sharp contrast with January's $6.80/bbl premium and 2014's average $3.90/bbl.

Importers in OECD Asia Oceania have benefited from Middle Eastern producers' competitive pricing policy towards Asian markets. Gulf producers, led by Saudi Arabia, export the vast majority East Asian countries' imported crude. Since late 2014, Saudi Arabia lowered its official selling price (OSP) to Asia and is now consistently selling at a discount to the Dubai benchmark reference, something not seen in four years. Other Gulf suppliers, Kuwait, Qatar, UAE and Iran also follow this strategy. The differential was marginally supported by a slight widening of the Dubai-Brent spread of $0.50/bbl.

In contrast, European imports price, linked to Brent rather than Dubai, went up in price on the month on the back of the North Sea benchmark gaining by $10/bbl in February, as oil markets partially retraced earlier drops (See Overview of 'Oil Market Report' March 2015 issue).

Since the latest import price data available, the Brent-Dubai differential remained about stable at -$1.40/bbl and the Arab Light OSP to Asia was raised from an average 1Q15 $1.90/bbl discount to Dubai to $0.60/bbl for May, suggesting that European premium might be short lived.

The IEA collects monthly data on its member countries' oil imports by quality, stream and price. The data is published in aggregate form in Tables 6 and 13 of this Report.



  • Global refinery crude runs averaged 78.2 mb/d in 1Q15, up 240 kb/d on last month's estimate on upwardly revised throughputs in Asia. Japan, China and Non-OECD Other Asia all posted strong runs, China with record high in March of 10.5 mb/d, but Latin America showing was weak. Annual growth in 1Q15 is now seen at 1.4 mb/d with OECD responsible for roughly 80% of this gains, and Europe alone about 60%.
  • Global refinery crude runs are expected to fall seasonally to 77.8 mb/d in 2Q15, but still 0.5 mb/d higher than forecast last month. Annual growth in 2Q15 remains at a strong 1.4 mb/d. Unlike in 1Q15, however the non-OECD region will again become responsible for the largest part of this increase - especially Asia, India and Middle East.
  • The March-May period will mark a seasonal low point in refinery activity, with significant capacity offline for maintenance, especially in Asia. For May, offline capacity was estimated at 1.2 mb/d in OECD Asia Oceania and 0.8 mb/d in China, 0.85 mb/d in OECD Europe, and 0.4 mb/d in OECD Americas.
  • Compared to historical averages, spring maintenance is relatively light this year. Refiners may have been delaying outages to take advantage of good margins. Global shutdowns for April were estimated at 4.6 mb/d, compared to 5.3 mb/d in April 2014 and 6.7 mb/d for the average over 2010-14.
  • Global refinery margins continued to ease from recent highs in April, as seasonally weaker demand and rising crude prices helped offset the impact of lower throughputs. Surveyed refinery margins all narrowed, with gasoline cracks less supportive, though hydroskimming margins remained positive in all regions.

Global refinery overview

Global refinery markets remained buoyant in April, supported by healthy OECD crude runs and resurgent refining activity in non-OECD countries. In February, the most recent month for which a complete set of monthly data is available, OECD refiners recorded an increase of 1.25 mb/d year-on-year (y-o-y) in aggregate crude throughputs, while non-OECD refinery runs expanded by 0.35 mb/d, reversing the previous month's trend. For March, OECD throughput gains appear to remain at a similarly high level, according to preliminary data. European plants accounted for two thirds of this surplus, and the OECD Americas for the rest. Refinery utilisation rates increased by 2% y-o-y in the US and Asia Oceania, but shot up 7% in Europe - now only 3 percentage points below US levels. These high refinery throughputs and utilisation rates occurred amidst a combination of high refining margins, high crude oil stocks and increasing oil prices - a conjunction of factors which are not usually present at the same time and which may prove only temporary.

Global crude run estimates for 1Q15 have been lifted by 240 kb/d since last month's Report, to 78.2 mb/d. Most of the upward revision took place in the OECD, including 155 kb/d in Asia Oceania - on surprisingly strong Japanese refinery activity — and 60 kb/d in the Americas. In the non-OECD region, upward revisions of 75 kb/d for China and 80 kb/d for Other Asia were partly offset by downward adjustments of roughly 40 kb/d each for Latin America, the FSU and the Middle East, mostly on unscheduled shutdowns.

The estimate of 2Q15 crude runs was also revised upwards by a significant 490 kb/d to 77.8 mb/d, an all-time high for a second quarter. Revisions were split roughly evenly between the non-OECD and the OECD, with non-OECD lifted by 215 kb/d and the OECD by 280 kb/d from prior estimates. The largest upward revisions were seen in the US (115 kb/d), Other Asia (145 kb/d), Europe (105 kb/d) and China (105 kb/d), offset by a 95 kb/d reduction to the forecast for the Middle East.

In the Middle East and in India, the full impact of new refinery capacity is not yet fully visible but could develop before end 2015. Preliminary data for Russian refinery activity seem to confirm that 2015 output will likely stay below 2014, a likely result of the recent tax changes.

Everywhere except OECD Asia Oceania, maintenance appears to be at the bottom of the 2010-14 range, close to 2014 levels. At their peak, in April, global 2015 shutdowns may have trailed the 2010-14 average by as much as 2 mb/d. Only in Asia Oceania do we see fairly extensive maintenance limiting runs: the forecast peak, in May, could reach 1.2 mb/d.


Refinery margins weakened across the board in April as feedstock prices firmed and products crack spreads did not follow. Margins nevertheless remained positive in all surveyed markets and, by early May, remained higher than a year earlier in Europe and Singapore. US refiners were particularly hard hit in April as domestic crude prices rose against other global benchmarks and rising throughputs increased supply to the market. Refiners in the US Gulf fared better than those in the mid-continent, thanks to high gasoline and ULSD exports. While on the decline, European margins were still buttressed by firm gasoline and fuel oil prices, while in Singapore strong bunkering demand was a bonus for refineries with high fuel oil yields.

European margins eased by an average $1.15/bbl in April after steadily firming over the previous four months, but by early-May remained in positive territory. Much of the downward momentum came from strengthening feedstock costs, with Brent hitting a 2015 high in early May and Urals increasing by more than Brent on an absolute basis, albeit from a lower base. Simple refiners were supported by export demand for products at the top and bottom of the barrel, which kept cracks for those products above-year ago levels. Refiners shipped gasoline to North and West Africa and fuel oil and naphtha to Asia. Complex refiners with higher middle distillate yields continued to benefit from cracks for ULSD trending at a healthy $15/bbl.

US refiners saw their margins weaken more than elsewhere in April as US feedstocks firmed against other global crude markers. Midcontinent margins tumbled from their end-March highs of over $35/ bbl to a still healthy $15-$20 in early May as plants came back from maintenance. On a monthly basis, April margins in the Midcontinent averaged $4.59/bbl below March. Refiners running Bakken and WCS, which strengthened against WTI, were particularly hard-hit. Those refiners serve mostly local markets and do not greatly benefit from export demand. In contrast, Gulf Coast margins fell by only $2.34/bbl on a monthly average basis, as, despite increasing regional throughputs, export demand helped to buttress gasoline and diesel prices.

Refiners in Singapore saw their margins fall by $2.27/bbl on soaring feedstock costs. Plants running sour Dubai crude saw their costs increase by approximately 15% more than those running light sweet Tapis. However, simple refiners running sour crudes did benefit from their high fuel oil yields, as firm regional bunkering activity saw fuel oil prices increase steadily over the month. Relatively strong middle-distillate and gasoline prices also helped keep regional margins in positive territory by early May.

OECD refinery throughput

OECD refinery intake decreased by 0.5 mb/d in March versus February levels, to 37.2 mb/d, as refiners in Europe and Asia Oceania started seasonal maintenance. Throughputs in the OECD Americas bucked the trend, rising by 0.2 mb/d m-o-m, as refiners there came out of turnarounds and strikes. OECD Runs remained a massive 1.2 mb/d above year earlier levels, however. Europe experienced the steepest gains (0.8 mb/d) due to weak 2014 numbers, followed by the Americas who saw runs 0.4 mb/d higher, while refinery activity in Asia Oceania was equal to 2014. Utilisation rates increased substantially from last year.

Expectations of refinery maintenance in total Asia have been trimmed somewhat, with outages now expected to peak at 2.2 mb/d over May/June, of which nearly 1.2 mb/d is poised to come from OECD Asia Pacific countries.

Overall, OECD throughputs are forecast to drop from an average 37.4 mb/d in 1Q15 to 36.8 mb/d in 2Q15, when y-o-y growth is expected to ease to 650 kb/d, from 1.1 mb/d in 1Q15.

Refinery activity in the OECD Americas picked up in March. In 1Q15, the crude throughput changes were contrasted: US crude runs were 0.3 mb/d more than a year ago, while Mexican throughputs were 0.1 mb/d below year-earlier levels due to a string of operational problems, including a fire at the 315 kb/d Tula Hidalgo refinery in early March. For 2Q15 in Mexico, runs are expected to be curbed by another fire at the 295 kb/d Minatitlan plant in early May, and planned maintenance at the Cadereyta refinery over April-May. 

A slight decrease in US crude stocks reported by the US Energy Information Administration for the week ending May 1st, after continuous increases since the beginning of this year, has been described in some commentaries as a bullish factor that would support crude prices. However, one can see this decrease as the result of a combination of high crude runs and low crude imports. In practice, total industry stocks have continued to increase, with stocks of both gasoline and distillates showing an uptick.

Compared with February, US runs were roughly 170 kb/d higher in March. Runs were especially high in the Gulf Coast and the Midcontinent, in line with the seasonal average in the East Coast, and well below average in the West Coast. In April, refinery throughput continued ramping up, reaching 16.1 mb/d, 0.6 mb/d above the March level. This constitutes a monthly record for April, roughly 1 mb/d above the 2000-14 average.

Further progress was made towards resolving a labour dispute between the US refining industry and the United Steelworkers union (USW).  BP and the USW reached a tentative agreement in late April to end an 11 week work stoppage in Whiting, but the agreement still needs to be ratified, after which the refinery will need to complete start-up operations. At Marathon's Galveston Bay and LyondellBasell's Pasadena refineries in Texas, however, workers rejected a "last" contract offer on 20 April. At the BP-Husky joint-venture refinery in Toledo, Ohio, a workers' strike also continues, although the refinery is operating near to normal. Should these refineries return to full production, US refinery intake could clearly reach another record. In terms of new refining capacity, a March report shows the 100 kb/d Corpus Christi Castleton Commodities condensate splitter project date of completion slipping to 2016 from an initial plan of 3Q2015.

OECD European crude runs decreased by 0.4 mb/d in March but remained 0.8 mb/d above year-earlier levels, making it the eighth consecutive month of annual growth. Despite this m-o-m fall, preliminary March data show Portugal and Greece reaching their highest levels in more than a decade, processing 290 kb/d and 470 kb/d, respectively. The monthly decrease came from Germany (-0.2 mb/d) and the Netherlands; Germany's Miro refinery was completely shut down in March, and Gunvor's Ingolstadt refinery was offline for a good part of the month; in the Netherlands, half the large Shell Pernis refinery was reportedly shut for maintenance.

The main shutdowns planned for April - the peak of the maintenance season - include continued maintenance at Pernis, an extensive maintenance for Neste's Porvoo in Finland . In May Ineos' Lavera and Grangemouth, Hellenic's Aspropyrgos, Phillips 66 Humber refinery and Total's Donges plant will start maintenance. Altogether, scheduled maintenance planning is on a low side for the second year running, which could mean a larger programme for 2016.

Preliminary data from Euroilstock indicate that European refiners maintained runs at elevated levels in April, in line with the announced subdued maintenance levels and sustained good margins.

In OECD Asia Oceania, total crude throughputs decreased by 0.3 mb/d in March from a month earlier, to 6.9 mb/d, at the level of last year. In Australia, BP confirmed operations at its 95 kb/d Bulwer Island refinery would be halted in May. Caltex was also to shut its Lytton plant for maintenance in May-June, which generated a downward revision of our estimated throughput for May of 110 kb/d.

South Korean refinery runs have been revised upwards by 90 kb/d for both March and April, with the March level now nearly at the record reached in February (2.8 mb/d). Runs have been supported by new 2014 condensate splitter capacity and good regional margins, but domestic demand appears to have been on a downward trend, falling from 2.4 mb/d in February to an estimated 2.2 mb/d in April. Korean throughputs are set to decline through May, when maintenance peaks at 460 kb/d, including planned outages at a 280 kb/d unit at Hyundai's Desean plant and a 180 kb/d unit at GS Caltex' Yeochon refinery. South Korea crude oil imports rose 8% y-o-y in April.

Japanese refinery runs continue to decrease in March, both vs. February and y-o-y, following capacity cuts of 0.5 mb/d in 2014. Contraction in Japanese refinery capacity is expected to continue in 2015 and 2016: the latest METI regulations, enacted in July 2014 and due to be implemented by March 2017, calling for further improvement in refiners' residue cracking ratio (residue cracking capacity divided by distillation cracking capacity), from the measured 45% in March 2014 to 50% by the end of March 2017. METI had estimated that refiners would have to trim capacity by 400 kb/d, but the planned closure of Petrobras Nansei Sekiyu refinery could increase this figure to 500 kb/d and reduce Japan's refining capacity to 3.45 mb/d.

Non-OECD refinery throughput

In February, Non-OECD refinery runs increased by 0.4 mb/d from January, to 41.0 mb/d. Throughputs averaged 0.35 mb/d above a year earlier. Annual gains were quite low in 1Q15, due to slower growth in a number of regions. Most notably, gains in the FSU, Latin America and non-OECD Asia, excluding China has remained weak compared to year-earlier levels. Despite the region's political turmoil, Middle East throughputs remain elevated and further gains are expected through 2015 as new capacity is fully commissioned.

Official Chinese refinery data for March show record-high throughputs of 10.52 mb/d, up by 0.15 mb/d from an already high February and 0.65 mb/d above a year earlier. However, it seems apparent that maintenance has been deferred to the April-June period, which explains such strength. The main refineries entering maintenance in April are Petrochina's Dushansi, Wepec's Dalian and Yanchang Yan'an, the three of them continuing - at least partly - in May. This month will coincide with two Petrochina refineries - Jilin and Karamay - shutting down for planned repairs. This high maintenance means that China throughputs should decrease to 10.0 mb/d in May, before picking up again. In April China crude imports were higher than expected, up 8.6 percent on a year ago to 7.4 mb/d.

On 28 April, Chinese authorities announced new measures to accelerate the quality upgrading of gasoline: the 10 ppm sulphur "phase 5" standard gasoline will be made compulsory starting next year in most of Eastern China. Previously, this measure was limited to Beijing, Tianjin, Hebei and the major cities in the Yangtze River and the Pearl River deltas. This means that China has caught up with OECD gasoline specifications in a very short time. Lower-sulphur diesel measures are also being studied. On 15 April, PetroChina announced that it is going to increase it Kunming refinery capacity from 200 kb/d to 230 kb/d, add a delayed coker, and increase the jet hydrotreater capacity to be able to manufacture "phase 5" standard products. This refinery is a JV with Saudi Aramco and Yuntianhua, a local chemical company. 

Indian refinery throughputs inched down by 40 kb/d m-o-m in March, to 4.54 mb/d, despite a shutdown at Reliance's large Jamnagar I refinery. The drop was about 100 kb/d less than forecast, due to higher runs at other plants. Essar deferred maintenance of its Vadinar refinery until July/August. The only other refinery undergoing maintenance in March was the BORLs' 120 kb/d Bina plant. However, in April and May, we expect only 380 kb/d and 60 kb/d of maintenance, respectively. Monthly revisions thus show Indian throughput for May and June higher by 160 kb/d in both months. In April, the new 300 kb/d Paradip refinery was reported to have started its first crude runs, but may ramp up only late this year until secondary units are completed. Other significant shutdowns forecasted in Other Asia include turnarounds at Exxon's Singapore refinery (eight weeks in April-June) and the Formosa Mailio refinery in Taiwan (March- April).

According to preliminary data, Russian refinery runs dropped by 80 kb/d in April, to 5.5 mb/d, as spring maintenance peaked around 700 kb/d. Runs are expected to rebound in May, as turnarounds are completed. The only large refineries still on shutdown are Rosneft's Komsomolsk and the two Kuibishev refineries. Final data confirmed that March was the first month this year with runs contracting year-on-year, by 230 kb/d or 4%. The dip was short-lived, and preliminary figures show that April throughputs were again higher y-o-y, by 50 kb/d, despite the new oil industry taxation, which was seen as a potential cause for Russian simple refineries to cut runs. In Moscow, the Russian Energy Minister is reviewing oil companies' requests to postpone the transition to Euro 5 standard by next year, amid growing concern over potential future fuel shortages and the impact of western sanctions on plant upgrades.

Latest JODI data show total Middle Eastern throughputs just slightly higher in February than in January. However, it translates into a 0.2 mb/d increase y-o-y, February 2014 throughput having been very weak. The impact of the start-up of new plants in Saudi Arabia and the UAE was offset by a decrease of roughly 0.3 mb/d elsewhere since last summer. In particular, Iraqi refinery runs have decreased significantly in the past year, and, with the conflict focusing on the Baji refinery in the north of the country, there is little chance to see this changing. In Saudi Arabia and the UAE, however, the increase in throughputs is evident. In Saudi Arabia, despite a downward revision of 0.1 mb/d, February crude runs held steady at 2.1 mb/d, 0.4 mb/d above last year. In the other Middle Eastern countries, no significant maintenance will take place before August 2015. In Yemen, the Aden refinery is understood to be operating normally using imported crude.

In Latin America, runs continue at unusually low levels, with March crude runs estimated at 4.4 mb/d. This figure was revised down by 140 kb/d from last month's Report, following extended outages in Brazil. Brazilian refinery runs rose 60 kb/d in March, to 2.0 mb/d. Lingering unplanned outages since the start of the year, nevertheless kept throughputs 175 kb/d below year earlier levels, resulting in a downward revision of 140 kb/d from last month's Report.

Petrobras released at end April the audited third-quarter and year-end 2014 results, and confirmed a severe cut in its downstream investment program. This included the postponement of the completion of the 165 kb/d Comperj refinery and the 115 kb/d second phase of the Abreu and Lima refinery - although both these projects are already well advanced - and the scrappage of plans to add 900 kb/d of capacity at Premium 1 and 2 refineries.

In Africa, February throughput stands at 2.2 mb/d, stable from last month and 130 kb/d lower y-o-y. Algerian refinery activity is expected to decline from current levels as Sonatrach plans maintenance at its large Skikda refinery over May and June. Meanwhile, Egyptian state-owned Middle East Oil Refining Company (Midor) has reportedly awarded contracts to UOP for a 60% expansion of the nameplate capacity of its 100 kb/d El Amreya refinery and related secondary units. However, government officials did not specify a timeline for the project.