Oil Market Report: 11 December 2015

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  • Benchmark crudes approached seven-year lows in early December after OPEC opted to continue producing at will to defend market share. Unrelenting oversupply in world markets had already weakened benchmarks during November. ICE Brent was last trading at $39.77 /bbl with NYMEX WTI several dollars lower at $36.87/bbl.
  • World demand growth of 1.2 mb/d is forecast in 2016, as first signs of a slowdown appear. Early indicators for 4Q15 show growth easing to 1.3 mb/d y-o-y, from a 3Q15 peak of 2.2 mb/d. The resulting annual growth of 1.8 mb/d for 2015 is led by China, the US, India and - somewhat surprisingly - Europe.
  • Global oil supply inched up 50 kb/d in November to 96.9 mb/d on slightly higher OPEC crude output. Total supplies stood 1.8 mb/d above a year ago, with OPEC accounting for the lion's share. Non-OPEC supply held at 58.5 mb/d in November, but annual growth slowed to below 300 kb/d from 2.2 mb/d at the start of 2015.
  • OPEC crude output edged 50 kb/d higher in November to 31.73 mb/d. Record production from Iraq and higher supply from Kuwait offset losses from African members. The 'call on OPEC crude and stock change' for 2016 is unchanged from our previous Report at 31.3 mb/d - a substantial rise of 1.6 mb/d on this year.
  • OECD commercial stocks drew for the first time in seven months in October to stand at 2 971 mb at end-month. Global inventories are set to keep building at least until late 2016, but at a much slower pace than observed this year. New and spare storage capacity should be able to accommodate the projected extra 300 mb of stocks.
  • Global refinery runs rose by 1.4 mb/d in November to 79.9 mb/d as the maintenance season drew to a close. Margins in November remained healthy, though lower in the US, but higher elsewhere, and still supported by gasoline and naphtha. Product cracks and margins, however, took a hit early December.

Reality check

OPEC's decision to scrap its official production ceiling and keep the taps open is a de facto acknowledgment of current oil market reality. The exporter group has effectively been pumping at will since Saudi Arabia convinced fellow members a year ago to refrain from supply cuts and defend market share against a relentless rise in non-OPEC supply. As oil flirts with $40/bbl and approaches a seven-year low, the early December move appears to signal a renewed determination to maximize low-cost OPEC supply and drive out high-cost non-OPEC production - regardless of price.

But the freewheeling OPEC policy does not - for now - alter the status quo on its supply. We see only limited upside potential until Iran starts to ramp up output assuming sanctions are eased next year. OPEC supply since June has been running at an average 31.7 mb/d, with Saudi Arabia and Iraq - the group's largest producers - pumping at or near record rates. Riyadh has held supply above 10 mb/d since March to satisfy demand at home and abroad while Iraq, including the Kurdistan Regional Government (KRG), is doing its level best to keep production above the 4 mb/d mark first breached in June.

There is evidence the Saudi-led strategy is starting to work. Lower prices are clearly taking a toll on non-OPEC supply, with annual growth shrinking below 0.3 mb/d in November from 2.2 mb/d at the start of the year. A 0.6 mb/d decline is expected in 2016, as US light tight oil - the driver of non-OPEC growth - shifts into contraction. As companies make further spending cuts in reaction to sub-$50/bbl oil, the impact on supplies - both from non-OPEC and OPEC - will be even more pronounced in the longer term.

At the same time, lower oil prices have been a boon to consumers - driving demand growth to a five-year high as motorists in the US, China and India fill up their tanks. But sustained low prices will not necessarily create benefits for importing countries in the longer run as it could complicate the transition to a low-carbon economy, as discussed in the 2015 World Energy Outlook. Consumption is likely to have peaked in the third quarter and demand growth is expected to slow to a still-healthy 1.2 mb/d in 2016, as support from sharply falling oil prices begins to fade.

Shrinking non-OPEC supply and on-trend demand growth should lead to a marked slowdown in the pace of global stock builds next year. However, as extra Iranian oil hits the market, inventories are expected to swell by 300 million barrels. Concerns about reaching storage capacity limits appear to be overblown. Oil tank tops should not come under pressure any time soon, due to spare storage capacity in the US and expectations of future storage capacity additions. Much of the excess oil will be soaked up by 230 mb of new storage capacity additions, while US inventories are only 70% full.

Storage levels may provide yet another check on reality. And as inventories continue to swell into 2016, there will still be a lot of oil weighing on the market.



  • Global demand growth of 1.2 mb/d is forecast in 2016, a notable slowdown from this year's five-year high as many of the factors that contributed to a rapid increase in oil use are likely to prove temporary. Growth peaked at 1.8 mb/d in 2015, supported by robust gains in China, the US, India and - somewhat surprisingly - Europe.
  • In stark contrast to a 3Q15 peak of 2.2 mb/d year-on-year (y-o-y), early indicators of 4Q15 demand growth show a dramatic slowdown - with preliminary estimates pointing to 1.3 mb/d y-o-y growth, the lowest in a year. Previous supports - such as post-recessionary bounces in many European countries and very strong US growth - are starting to give way.
  • After leading global demand growth, weaker US demand conditions since September are likely to prove a key contributor to the downside. Up by a record 0.5 mb/d y-o-y in 1H15, US growth eased to 0.4 mb/d in 3Q15 and will likely fall in absolute terms in 4Q15. Early data signals show that the initial stimulus from sharply falling crude oil prices is starting to fade. Apart from the US, preliminary October numbers show notable slowdowns in Japan, France and Germany.
  • China's 2016 oil demand forecast has been raised due to higher gasoline numbers. The IEA's latest data show a more rapidly expanding gasoline fleet, with demand next year rising by 0.2 mb/d. The diesel forecast, however, is flat-to-falling due to sluggish industrial oil demand.
  • Preliminary Indian demand figures for October showed their largest ever gain as low prices, an ambitious road-building programme and robust macroeconomic underpinnings supported strong gains in diesel, gasoline and bitumen.

Global Overview

Over one year into a period of sharply falling crude oil prices, the supportive influence from lower/falling prices appears to be waning - a long-cited IEA prognosis, but one that is gaining traction with the latest demand data. In the US, a nine-month strong demand trend came to an abrupt halt in September, with preliminary indicators for October and November pointing to further outright declines. For 4Q15, global oil demand growth should ease back towards 1.3 mb/d y-o-y - a one-year low - having peaked at 2.2 mb/d in 3Q15.

Such metrics equate to world oil demand growth maxing-out at a five-year high of 1.8 mb/d in 2015, with global deliveries at an average 94.6 mb/d for the year. Rapid gains in gasoline demand - from the US, China and India - fuelled the growth. Strong gains in European gasoil/diesel demand also contributed heavily after many of the region's economies waved goodbye to recessionary conditions.

As for 2016, global oil demand growth is expected to edge closer towards its long-term trend, easing back to 1.2 mb/d, taking global deliveries to an average 95.8 mb/d. Early indicators of 4Q15 demand show the projected slowdown already occurring, with absolute declines in US, French, German and Japanese deliveries seen in October. An exceptionally precarious macroeconomic backdrop is also likely to restrain the 2016 forecast. The US Federal Reserve is likely to start tightening monetary policy and raise interest rates, which could dampen many already weak emerging market currencies and create more problems for their already ailing economies. The International Monetary Fund (IMF), in October's World Economic Outlook, cited that "the liftoff of US policy rates from the zero lower bound is likely to be associated with some tightening of external financial conditions…(and that) emerging markets remain vulnerable in the short term to further declines in commodity prices and sharp appreciation of the US dollar, which could further strain corporate balance sheets in some countries."


Rapid gains in OECD oil demand growth may be on the verge of a sharp deceleration if the latest preliminary indicators of US, German, French and Japanese deliveries can be used as a 'canary in the mine'. Having risen in 3Q15 by 0.8 mb/d (or 1.8%) y-o-y, OECD oil demand looks to be posting a reversal, falling by around 0.1 mb/d (or 0.2%) in 4Q15 y-o-y as US demand conditions deteriorate sharply (see Americas). The OECD oil demand trajectory is forecast to see flat-to-falling demand in 2016.


The gloss of sharply falling crude oil prices appears to have faded as a stimulus to strongly rising demand conditions in the OECD Americas. Preliminary October numbers show regional oil deliveries averaging 24.4 mb/d in the OECD Americas, 380 kb/d down on the year earlier after a confirmed y-o-y decline of 55 kb/d in September. This amounts to a dramatic change from the average 410 kb/d gains seen in the first eight months of 2015.

After experiencing nine consecutive months of positive y-o-y growth, the US is leading these widely fluctuating demand conditions. September saw a rare, albeit modest, return of lower y-o-y demand across the 50 states of the US. The last confirmed data point for the US shows deliveries easing back by 20 kb/d compared to a year earlier to 19.2 mb/d in September. Demand fell due to sharp declines in LPG, residual fuel oil and 'other products'. LPG's switch has been particularly stark, since it rose strongly from April through July, before falling by 155 kb/d y-o-y in August and 265 kb/d in September. US LPG demand fell as warm weather curbed the propane crop-drying requirement in the Midwest and an ethane cracker shut on the Gulf Coast. Although we have been alluding to a weaker US demand trend towards the end of the year, the September adjustment surprised by its scale - a full 120 kb/d below our previous estimate.

Preliminary estimates of demand across the 50 states of the US for both October and November based on weekly data from the US Energy Information Administration show further y-o-y declines as previously strong gains in US gasoline demand appear to easing just as industrial oil use weakens. Having risen by close to 3% compared to the year earlier through the first nine months of 2015, US gasoline demand growth will struggle to get above 1.5% during October-November. The most price-responsive US drivers have already put many more miles 'on the clock' and with retail pump prices flattening out in recent months the price stimulus has ebbed. Leading manufacturing business sentiment indicators - such as the Institute of Supply Management's Manufacturing Purchasing Managers' Index (PMI) - returned to 'contracting' territory in November after a two-year hiatus, indicating weakening industrial sector oil demand. Thus for 4Q15 as a whole, total US oil deliveries are forecast to average 19.4 mb/d, 155 kb/d below year earlier levels. The forecast for the year as a whole also equates to 19.4 mb/d, a gain of 285 kb/d on the year earlier. Next year the US demand forecast is up only marginally to 19.5 mb/d, as projected decelerations in US gasoline, jet/kerosene and 'other product' demand growth bring the overall trend down significantly.

Pulled down compared to recent heights, Mexican oil deliveries in October essentially maintained parity with year earlier levels, as previous sharp gains in industrial oil use ebbed. Having risen in y-o-y terms by 65 kb/d in September and 45 kb/d in August, October's modest 15 kb/d decline amounted to a sharp reversal in sentiment. Sizeable declines in Mexican gasoil/diesel and 'other product' deliveries led October's reversal, respectively falling by 20 kb/d and 15 kb/d compared to the year earlier. Easing demand from the electricity generating sector proved a particular downside contributor, as the Mexican Secretaria de Energia reported power-sector gasoil/diesel use down by around a half in October, y-o-y, with coal use up sharply in contrast. A continuation of October's relatively flat Mexican demand trend is foreseen in 2016, as deliveries average roughly 2.0 mb/d in both 2015 and 2016.


The strength of the European oil demand picture - as deliveries rose in y-o-y terms through the first three quarters of 2015, contrary to the long-term trend - is largely one of rising gasoil/diesel demand. European gasoil demand rose strongly through the first nine months of this year as additional industrial and transport sector use coincided with a legislative change that forced many shippers to use low-sulphur fuels post December 2014 (see Medium Term Oil Market Report, 2015). Recent strong gains in Italy, the UK and Turkey have led Europe's upside, offsetting slowdowns/declines in Spain, Germany and France. Additional gasoil demand in the UK proved to be a key upside contributor to European growth during August-September. Total UK industrial activity posted a 1.1% y-o-y gain in September, according to the UK Office for National Statistics, continuing a near-two year period of rising y-o-y activity supporting robust gains in industrial oil use. October saw the ninth consecutive month of rising y-o-y demand in previously beleaguered Italy, with strong gains in the petrochemical and jet transport markets the key recent upside contributors.

Despite such recent gains, the IEA still foresees a deceleration occurring in 4Q15. Notable European economies that have already shown early signs of easing include Spain, France and Germany. Having seen y-o-y growth average 25 kb/d through the first nine months of the year, Spain's 45 kb/d October decline is likely to be a harbinger of persistent weaknesses to come, as we foresee the country's demand falling by around 1% in 2016. Post-recessionary stimuli are losing potency, as is the supportive influence of falling prices. A similar picture is painted for France and Germany, with respective y-o-y declines of 5.3% and 1.4% in October.

Asia Oceania

Rising modestly in 3Q15, OECD Asia Oceania has seen generally declining oil demand for many years and is forecast to return to trend from 4Q15-through-2016. After a decline of 15 kb/d y-o-y in 2015 to 8.1 mb/d, total oil deliveries in OECD Asia Oceania are forecast to fall by a further 25 kb/d in 2016 due to declines in the transport sector, right across OECD Asia Oceania, and the power-sector, specifically in Japan. Prior to 3Q15 the region endured five consecutive quarters of falling y-o-y demand with the sharpest contractions reserved for residual fuel oil and 'other products'. Declines in Japanese residual fuel oil and 'other product' deliveries, largely attributable to the power sector, account for the majority of these falls. Meanwhile, gains in naphtha and gasoil/diesel demand proved insufficient until 3Q15 to offset the otherwise declining demand trend in OECD Asia Oceania.

Falling by approximately 3.5% y-o-y in October, along with a downwardly revised January-August series, the overall Japanese oil demand estimate for 2015, at 4.2 mb/d, has been curbed by approximately 15 kb/d compared to last month's Report. This revised estimate leaves a decline of 120 kb/d (or 2.7%) over 2014, with sharp drops in residual fuel oil, LPG and 'other products' offsetting gains in road diesel and naphtha, the latter largely due to additional petrochemical demand. A further, albeit smaller, decline in Japanese demand, -80 kb/d to 4.1 mb/d, is foreseen for 2016, with drops envisaged across both the transport and power sectors. The downside momentum eases as the power sector's flight from oil progressively runs out of steam. Already as of late-2015 the ten largest Japanese electricity utilities tracked by the Federation of Electric Power Companies had reduced their combined oil usage to 0.1 mb/d in October, as gas, coal, renewables and even nuclear filled the void. Nearly one-quarter down on year earlier levels, or two-thirds down on two years prior, little room is left for further sizeable declines in Japanese power sector oil use, hence the more modest decline that is forecast for 2016.

Strong gains across the major industrial fuels saw Korean oil demand growth scale a near three-year high of 185 kb/d (or 8.2%) y-o-y in October. The scale of growth massively outpaced overall industrial output expansion, which according to Statistics Korea rose by approximately 1.5% in October compared to the year earlier. Korean oil demand growth peaked as lower prices and the relatively subdued state of demand one year earlier provided an additional one-off stimulus to consumption. Having risen by around 90 kb/d in 2015, to 2.4 mb/d, a deceleration is foreseen in 2016 (+45 kb/d) due to a softening in Korean transport fuel demand.


Having bottomed-out at around 1.0 mb/d y-o-y in 1Q15, non-OECD momentum has modestly accelerated, supported by strong gains in the region's two dominant consumer nations - India and China. Rising by approximately 1.4 mb/d (or 3.0%) y-o-y in 3Q15 to 48.8 mb/d, the region posted its sharpest gain in two and a half years - supported by continued gains in gasoline demand and, more recently, by higher deliveries of gasoil/diesel and LPG (including ethane). Previously conspicuous by its absence, returning non-OECD gasoil/diesel demand growth is a very notable occurrence. Looking forward, non-OECD oil demand growth should stabilise at around 1.0-to-1.4 mb/d from 4Q15-2016, modestly down on recent months, as some of the previous support from falling oil prices wanes. Growth is expected to remain above recent lows as activity in the region's two key pillars of contemporary demand strength - India and China - remain net-supportive.


The much-anticipated structural shift in the Chinese economy - away from heavy industry/exports towards domestic demand/services -is indeed occurring but having a much gentler impact on net oil demand than previously foreseen. Although some forecasters saw economic growth slowing to about 4% (the IMF's October World Economic Outlook cites a 6.8% expansion - still well down on the previous five-year trend of approximately 8.6%), the first ten months of 2015 saw Chinese oil product demand growth average 6.7% (or 0.7 mb/d) in y-o-y terms. This figure shows surprising buoyancy compared to the previous five-year average when the underlying macroeconomic backdrop was arguably much more favourable. Gasoline, LPG and 'other product' demand posted average y-o-y gains of 0.2 mb/d y-o-y through the first ten months of 2015, more than offsetting weak expansion in gasoil and naphtha and absolute declines in residual fuel oil.

Although the economic outlook grew more precarious in 2015, Chinese consumers maintained sufficiently high confidence levels to stimulate escalating vehicle usage - both road and air - supporting robust gasoline (see Heady vehicle sales support strong Chinese gasoline demand growth) and jet fuel deliveries. Chinese gasoline demand growth averaged 10.4% (or 230 kb/d) y-o-y through the first ten months of 2015 and jet 19.1% (or 100 kb/d). Such heady gains, coupled with sharp increases in the country's LPG requirement as a petrochemical feedstock, proved more than sufficient to offset China's otherwise ailing industrial oil use.

At an estimated 11.3 mb/d for October, the IEA's apparent demand estimate carries a near 5% premium compared to the year earlier, an estimate pulled higher by a third consecutive month of heady diesel destocking. Although sharp gains were clearly seen in gasoline, jet/kerosene and LPG (including ethane) demand, taking into account additional diesel stock draws, the gasoil demand estimate also likely rose. Chinese diesel demand is likely to have risen by around 4% in October, broadly in-line with the 5.6% y-o-y quoted for total Chinese industrial output by the National Bureau of Statistics and the recent uptick in the Manufacturing PMI (although still net-pessimistic).

Heady vehicle sales support strong Chinese gasoline demand growth

Upending year-earlier forecasts that Chinese gasoline demand would struggle in 2015, confirmed data for the first ten months of the year show growth of roughly 10.4% y-o-y. Such momentum exceeds the consensus of analysts' earlier expectations, adding roughly four percentage points over February's Medium-Term Oil Market Report. Furthermore, reports of rapidly expanding gasoline demand, in contrast to weak gasoil/fuel oil, add to the increasingly compelling argument that the Chinese economy is undergoing a structural transformation - shifting from heavy manufacturing/exports towards a more domestically-focused economy.

The obvious questions are 'what has changed' and 'how did Chinese gasoline rise so strongly'? The answer to both is that China sold many more vehicles than previously expected. Given the exceptionally challenging macroeconomic backdrop, with Chinese economic growth forecast to contract to a 25-year low in 2015, excessively muted early forecasts were made for additions to the gasoline vehicle fleet (around 5% in February's Report). The reality proved much stronger. Data for the first ten months of 2015 from the China Association of Automobile Manufacturers (CAAM) show sales of 16.5 million passenger cars. Although such new car sales were only 3.9% higher than the corresponding period in 2014, assuming sales over the remainder of the year averaged the previous ten months, total Chinese passenger car sales would easily top 20 million units in 2015. With an ambitious Chinese scrapping estimate of less than 1 million vehicles in 2015, this equates to a near 20% increase in the Chinese fleet.

Given such dramatic gains in the Chinese vehicle stock, the majority of which we believe to be gasoline-powered, gasoline demand growth has if anything surprised to the downside. Maintaining average vehicle usage levels from the year earlier, coupled with IEA transport model assumptions that over the period 2010-15 the Chinese vehicle stock each year become 1% more efficient each year, robust vehicle sales imply gasoline demand growth of around 0.4 mb/d. Our conservative estimate of the latest data puts it at half this level.

The Chinese authorities do not publish demand statistics, so we have to approximate product demand via our 'apparent demand' calculation, i.e. Chinese apparent gasoline demand = Chinese refinery output of gasoline + net gasoline imports - gasoline product stock-builds. We then adjust this series to take account of historical average discrepancies that exist between these approximations and the detailed work that the IEA's statistics division published in its annual Energy Statistics of Non-OECD Countries. This methodology, which is based on estimates, shows Chinese gasoline demand growth of around 230 kb/d (or 10.4%) on a y-o-y basis through the first ten months of the year.

If, as looks probable now, some of the big recent increases in the Chinese vehicle stock have resulted in many vehicles sitting idle, or at least partially-utilised as happened in 2009 and 2011; this potentially stores up persistent strong gains in Chinese gasoline demand for many years to come. For example, assuming a further gain of around 10% in the Chinese gasoline fleet in 2016, equivalent in IEA models to a net-addition of nearly 13 million vehicles, whereby the majority of these extra vehicles are 'normally' utilised but some of the previous year's additions come in at a higher utilisation, the net effective increase in the Chinese vehicle stock would be even higher than the original 13 million estimate. The Chinese gasoline demand forecast could thus be higher than the current +0.2 mb/d forecast, or less of course if not only the previously under-utilised vehicles stay under-utilised but also some of the units sold in 2016 lay idle. Predicting such vehicle usage levels is a very inexact science, but one that we must highlight as a potential wild-card for the 2016 Chinese demand forecast.

Other Non-OECD

Adding approximately 0.3 mb/d in 2015, to 4.0 mb/d, Indian demand posted its largest ever gain supported by strong growth in gasoil/diesel, gasoline and LPG. Preliminary October data, from the Petroleum Planning and Analysis Cell of the Indian government, showed demand growth of 17.5% y-o-y, a 12-year high, with the transport sector leading the upside. With domestic passenger car sales up 22% y-o-y, according to the Society of Indian Automobile Manufacturers, alongside reports of a heavy road building programme, gasoline, diesel and bitumen demand surged, respectively higher by 14.2%, 16.1 % and 64.4% y-o-y in October. A further overall gain of around 0.2 mb/d is foreseen in 2016, down on the year earlier as the dramatic price reductions of 2015 are unlikely to be repeated but still up strongly compared to the pre-2015 trend with gasoline and diesel forecast to rise by a fast clip.

The latest Brazilian oil demand data for October show a continuation of the falling y-o-y trend that commenced in August. Pulled down by sharp declines across all of the main product categories, bar gasoline and 'other products', Brazilian oil deliveries in October posted their sharpest y-o-y decline in eight months. Down by 145 kb/d y-o-y in October, or -4.2%, the overall Brazilian demand metric was pulled down chiefly by big contractions in gasoil/diesel demand, -110 kb/d (or -9.3%) y-o-y, a natural consequence of the economy's recent woes. The Instituto de Geografia e Estatistica reporting industrial production declining by 10.9% y-o-y in September, while Markit's Manufacturing PMI fell to an all-time low, of a clearly contractionary, 43.8 in November whereby any reading below 50 signifies net-pessimism. Because of such pressures, it is difficult to foresee anything other than further absolute contractions in Brazilian oil demand 2015-16, with respective declines of 30 kb/d and 25 kb/d forecast taking average deliveries down to around 3.2 mb/d by 2016.

Curbed by big y-o-y declines, August-through-October, the Russian oil demand estimate for 2015 shows a decline of around 2%, as deliveries average 3.6 mb/d in 2015. A further drop of around 1% is foreseen in 2016, taking deliveries down to 3.5 mb/d, as Russian oil demand fall as a consequence of the likely prolonged contraction in the Russian economy, albeit at a less severe pace going forwards. The IMF, in October's World Economic Outlook, estimated that the Russian economy would contract by 3.8% in 2015 and a further 0.6% in 2016. Focussing on the latest demand data, deliveries declined in both y-o-y and month-on-month terms in September and October, while the y-o-y trend since February has, with the odd exception, been largely a negative one. Averaging 3.5 mb/d in October, Russian oil product deliveries were nearly 3% lower than the corresponding month in 2014, with sharp declines seen in residual fuel oil, jet/kerosene and gasoline. Transport fuel demand ebbed as consumer confidence in Russia, as tracked by the Federal State Statistics Service, came in at a heavily pessimistic -24 in 3Q15, whereby any reading below zero is gloomy; industrial oil demand ailing as Russia's total industrial output fell by 3.6% y-o-y in October.

Having recently paused for breath, Saudi Arabian oil demand returned to strong y-o-y growth once again in September, supported by sizeable gains from industry, transport and peak-summer air-conditioning demand. At an estimated 3.6 mb/d in September, total Saudi Arabian oil deliveries rose by 0.2 mb/d (or nearly 5%) compared to the corresponding month last year, bringing growth back towards the kind of heady heights seen in 1H15. For the year as a whole, Saudi Arabian oil deliveries are projected to average roughly 3.2 mb/d, 0.1 mb/d (or 3.2%) up on the year. Growth conditions then likely moderate to around 1.9% in 2016, as underlying macroeconomic conditions deteriorate, a consequence of persistently suppressed oil prices (at least compared to pre-2015 experiences). Lower oil prices dampen Saudi Arabia's potential economic spend and, in turn, the country's own oil use, a downturn that is eased as additional petrochemical demand from the Sadara facility in Jubail provides an offset. Previous reports from the company stated that a mixture of 70% naphtha and 30% ethane would be used as the principal feedstock at the facility.



  • Global oil supplies inched up 50 kb/d in November, to 96.9 mb/d, on slightly higher OPEC crude output. Total supplies stood at a robust 1.8 mb/d above a year earlier, with OPEC total liquids accounting for the lion's share of the growth, at 84%.
  • OPEC crude output edged 50 kb/d higher in November to 31.73 mb/d with record production from Iraq and higher supply from Kuwait offsetting losses from African members. The group opted at its 4 December meeting to continue pumping at current levels and scrapped an official 30 mb/d production ceiling that had been roundly ignored. OPEC crude supply stood nearly 1.4 mb/d above a year ago, when it adopted a Saudi-led policy to defend market share regardless of price.
  • The 'call on OPEC crude and stock change' for 2016 is unchanged from our previous Report at 31.3 mb/d - a substantial rise of 1.6 mb/d on this year. Slightly higher expectations for non-OPEC supply have led to a minor downward revision in the 2H16 'call' on OPEC. In the last six months of 2016, the 'call' is due to rise by 1.2 mb/d from 1H16 to 31.9 mb/d - marginally above current output.
  • Oil below $50/bbl is clearly driving out non-OPEC supply, with annual growth slowing to below 0.3 mb/d in November, down from 2.2 mb/d at the start of the year and with a decline of 0.6 mb/d expected in 2016. Despite oil's latest drop, the forecast for non-OPEC production for next year, which slips to 57.7 mb/d, is largely unchanged since last month's Report.
  • Record high Russian output and a rebound in Canadian and Kazakh levels offset strike-affected Brazilian oil output and seasonally weaker biofuels production - leaving non-OPEC output steady in November at 58.5 mb/d. Output for 2015 is set to expand by 1.3 mb/d - a sharp slowdown on growth of 2.4 mb/d seen the year before.

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

OPEC crude oil supply

OPEC crude oil output crept up 50 kb/d in November to 31.73 mb/d with record rates from Iraq, including the Kurdistan Regional Government (KRG), and a rebound in Kuwaiti flows offsetting lower supply from Nigeria, Libya and Angola. Iraq turned in its strongest performance yet after exports from the south rose to their highest ever after bad weather restricted shipments in October. Saudi production held steady in November at 10.19 mb/d, not far from all-time highs.

OPEC's taps will remain open for the foreseeable future after the group decided at its Vienna meeting on 4 December to keep producing at current levels and abandon its production ceiling. Our November output assessment of 31.73 mb/d excludes Indonesia, which had its membership reactivated in early December. Indonesia's crude oil production estimate will be included in OPEC Supply from the January 2016 Oil Market Report and will be reflected in the 'call on OPEC' from that point.

OPEC meanwhile acknowledged in a closed session that the group's output was running at least 1.5 mb/d above an official 30 million b/d target. That production ceiling, in place since January 2012, was maintained when OPEC met a year ago and Riyadh persuaded the group not to cut supply but to defend market share against rising non-OPEC supply. At that time, the price of oil had tumbled towards $70/bbl from above $115/bbl in June 2014 and some within OPEC were calling for supply cuts. Brent crude is now around $40/bbl, but Saudi Arabia, the world's largest oil exporter, remains adamant that it will not act alone to shore up prices and continues to insist that non-OPEC producers must also participate in any supply curbs.

OPEC has effectively been producing at will since it backed the Saudi-led policy a year ago, with overall crude production up nearly 1.4 mb/d year-on-year. Saudi Arabia and Iraq - the group's largest producers - have ramped up by a respective 580 kb/d and 930 kb/d since November 2014. The unusual move to scrap the official supply target at the 4 December meeting signals a renewed determination to defend market share regardless of price. Despite the hands-off OPEC policy, with Saudi Arabia and Iraq pumping at or near record rates there is limited potential for supply growth in 2016 apart from Iran, assuming sanctions are eased. Ministers may discuss a new production ceiling at their next scheduled meeting on 2 June, at which point the impact of Iran's full return to the oil market post-sanctions should be clearer.

The 'call on OPEC crude and stock change' for 2016 (excluding Indonesia) rises by 1.6 mb/d to 31.3 mb/d, unchanged from our previous Report. Slightly higher expectations for non-OPEC supply have led to a minor downward revision in the 2H16 'call' on OPEC. In the last six months of 2016, the 'call' is due to rise by 1.2 mb/d from 1H16 to 31.9 mb/d - marginally higher than current output. The group's 'effective' spare capacity stood at 2.32 mb/d in November, with Saudi Arabia accounting for nearly 90% of the surplus.

Production in Saudi Arabia held steady at 10.19 mb/d in November as higher shipments of crude oil to world markets and an uptick in internal refinery runs offset a lower requirement for crude to burn in domestic power plants. Riyadh's drive to preserve market share and meet demand at home has pushed production beyond 10 mb/d for nine straight months. Saudi oil officials have said they see signs of strong demand for its crude and industry sources say there is every indication the Kingdom is supplying its customers with all their requested volumes. In particular, China and India appeared to be lifting more Saudi oil during November, according to preliminary tanker tracking data.

Saudi crude exports have been holding above the 7 mb/d mark for much of this year, with shipments averaging roughly 7.3 mb/d from January through September versus around 7.1 mb/d during the same period in 2014, according to the latest figures submitted to the Joint Organisations Data Initiative (JODI). Total Saudi oil exports, excluding condensates and NGLs, averaged around 8.4 mb/d during the first nine months of the year versus 8.0 mb/d during the same period in 2014.

Saudi refineries, returning from scheduled maintenance, processed record quantities of crude - 2.5 mb/d - during September, up about 300 kb/d on the previous month. The volume of crude used to generate power for air conditioning eased to 744 kb/d in September from 847 kb/d the previous month.

Saudi Arabia's Deputy Crown Prince Mohammed bin Salman meanwhile appeared to suggest that the Kingdom could keep up robust spending even if oil prices were to fall to $30/bbl. "The key challenges are our overdependence on oil and the way we prepare and spend our budgets," Prince Mohammed, the son of King Salman, said in an interview with the New York Times. Riyadh is mulling various reforms including reduced energy and water subsidies for wealthy Saudis.

As for Saudi Arabia's Gulf neighbours, Kuwaiti output rebounded to 2.8 mb/d in November, up 70 kb/d month-on-month (m-o-m), upon the completion of scheduled maintenance at a crude oil gathering centre. Kuwait has meanwhile appointed deputy prime minister and finance minister Anas al-Saleh as acting oil minister, replacing Ali al-Omair. In a cabinet reshuffle, al-Omair was appointed minister of public works and minister of state for national assembly affairs. Kuwait's oil policy is determined by the country's Supreme Petroleum Council. Production in the UAE held steady at 2.89 mb/d, close to a record high of 2.91 mb/d, while Qatari supply inched up 10 kb/d to 680 kb/d.

Output in Iraq, including the KRG, rose by 140 kb/d to a record high of 4.31 mb/d in November. OPEC's second biggest producer supplied world markets with nearly 4 mb/d of crude during November. Shipments from Iraq's main outlet in the south rebounded to 3.37 mb/d - the highest ever - after bad weather in October cut exports to 2.7 mb/d. November's lofty export levels will be difficult to sustain as some of the volume was drawn out of storage tanks that filled up the previous month, according to industry sources.

Shipments of northern crude via Turkey remained brisk at around 600 kb/d, all of which was sold by the KRG. The semi-autonomous northern region has increased independent oil sales since mid-June and has cut allocations to Iraq's State Oil Marketing Organisation (SOMO) in an escalating row over budget payments and export rights.

Baghdad and the KRG are struggling with the strain of oil below $50/bbl and a costly battle against the Islamic State of Iraq and the Levant. The federal government has asked contractors to cut 2015-16 budgets and hold production steady, while the KRG is struggling to make timely payments to foreign companies developing its fields. Output, including from the KRG, is likely to remain broadly steady in 2016 versus a 3Q15 rate of roughly 4.2 mb/d.

Given its urgent budgetary needs and the tumble in crude oil prices, Iraq has every incentive to crank out as much as it can. With Basra crude at an average $36.42/bbl, record-breaking oil sales earned the federal government about $3.7 billion in November. Roughly $3.3 billion was earned during October, when southern exports of just 2.7 mb/d were sold at a higher average price of $39.26/bbl.

Crude oil supply from Iran held steady at 2.87 mb/d in November, but production is due to rise next year following an anticipated easing of international sanctions. Tehran, which expects sanctions to be suspended at the start of 2016, says it will deliver an extra 500 kb/d to world markets immediately. Iran had been producing around 3.6 mb/d in 2011 before the US and European Union enforced tighter financial restrictions. Our expectation remains that Iranian oil fields are capable of returning to that higher level within six months of sanctions being eased.

Before it ramps up output, Iran is expected to start to release substantial volumes of oil stored at sea. At the end of November, roughly 36 mb of oil, of which 67% was condensates, was floating in 18 tankers. One vessel loaded with crude set sail for Asia during November.

Deliveries of Iranian crude this year have been running at roughly 1.1 mb/d, steady on 2014. Imports of Iranian crude during November rose to 995 kb/d, up roughly 220 kb/d on October when purchases fell to the lowest level since international sanctions were tightened. Exports had been running at roughly 2.2 mb/d at the start of 2012. November saw higher purchases from regular buyers China, India, Turkey, Japan, Syrian and Korea, according to preliminary import figures that are subject to revision. Purchases of condensate - ultra-light oil from the South Pars gas project - slipped to 118 kb/d in November from a 2015 peak of around 190 kb/d in October.

Iran is meanwhile pressing ahead with plans for an ambitious upstream opening, once sanctions are eased. Potential international investors - reportedly including Total, Lukoil, Royal Dutch Shell and OMV - were presented with details of 70 oil and gas projects at a conference in Tehran at the end of November.

Production from African OPEC members fell by 170 kb/d m-o-m, as exports trended lower, according to preliminary tanker tracking data. Output in Libya dropped to 380 kb/d in November, down 50 kb/d m-o-m, after deteriorating security forced the closure of the eastern Zueitina export terminal. A prolonged battle between the officially recognised government in the east and the so-called Libya Dawn administration in Tripoli has shut operations at the North African producer's strategic oil terminals and fields, that had pumped 1.6 mb/d prior to the downfall of Muammar Gaddafi in 2011. Supply from West African producers declined by 120 kb/d. Angolan output declined by 40 kb/d m-o-m to 1.74 mb/d in November, while Nigerian output fell to 1.82 mb/d, down 80 kb/d m-o-m.

Turning to Latin America, Venezuela's opposition scored a decisive win in early December elections - putting it in control of the legislature for the first time in 16 years of Socialist rule. Oil below $50/bbl has dealt a heavy blow to Latin America's largest oil producer, which is in the grip of a severe economic crisis. The opposition has promised to put Caracas on the road to economic recovery, but the victory also raises the risk of prolonged instability. President Nicolas Maduro swiftly recognized the opposition's win. The Socialist government has diverted much of the revenue earned by state oil company PDVSA to social programmes, leaving the company strapped for cash. Crude supply bumped up to 2.4 mb/d in November.

Non-OPEC overview

Non-OPEC production held steady in November at around 58.5 mb/d. A rebound in Canadian oil sands and Kazakh crude supplies offset seasonally lower biofuels production and strike-affected Brazilian output. Production from top non-OPEC producers Russia and the US is proving resilient, with the former inching up to yet another record high in November. US crude and condensate output rose contrary to expectations in September, with lofty Gulf of Mexico output and Alaskan supply offsetting declines in onshore output. According to the latest US Energy Information Administration (EIA) statistics, US LTO production is currently dropping by about 75-115 kb/d per month as legacy declines from existing wells are exceeding output from new wells.

Industrial action and unscheduled outages have meanwhile slashed output in Brazil and Azerbaijan. A workers' union strike curbed output from Petrobras' offshore installation for three weeks in November, cutting into otherwise robust annual gains in output. A deadly fire at one of Socar's offshore platforms in the Caspian Sea in early December is also, depending on the extent of the damage, expected to curb output levels from December onwards.

Non-OPEC output growth has nevertheless come down from recent highs. Annual gains are pegged at less than 0.3 mb/d for November, down from 2.2 mb/d at the start of the year. The United States, Canada, Russia, the UK and global biofuels make up the bulk of the year-on-year growth, with Brazil, Mexico, Kazakhstan and Malaysia expected to see the steepest declines. The forecast for non-OPEC output for 2016 is largely unchanged since last month's Report, slipping by 0.6 mb/d to 57.7 mb/d. Total non-OPEC oil output is on track to expand by 1.3 mb/d in 2015.


North America

US - September actual, Alaska - November preliminary: Contrary to expectations, US crude oil production increased by 40 kb/d in September to just shy of 9.4 mb/d, with continued gains in the Offshore Gulf of Mexico (+38 kb/d) and a rebound in Alaskan output (+65 kb/d) offsetting onshore declines. The steepest falls stemmed from North Dakota and Colorado, where the Bakken and Niobrara LTO plays dominate supplies, while Texas output held steady. A small increase in NGL production and other non-crude liquids lifted total output by a further 40 kb/d from the previous month. Compared with a year earlier, US oil supplies were 650 kb/d higher, significantly stronger than previously expected but down sharply from the more than 2.1 mb/d gains seen at the tail end of 2014. The forecast for US oil production is largely unchanged since last month's Report, however, declining by 415 kb/d in total to 12.4 mb/d in 2016.

Despite resilient recent output levels, US shale production is falling fast as there are no longer enough completed wells to compensate for declines at existing wells. According to the EIA's Drilling Productivity Report, legacy declines from existing wells by December have been exceeding output from new wells since May, with total production set to fall by 95 kb/d in November and 115 kb/d in December. Only the most prolific shale wells are still profitable with prices at around $40/bbl. Drilling activity has fallen by 60% compared with a year ago and new wells added only an estimated 235 kb/d in December, two thirds of the DPR's estimated legacy decline rate.

According to oil services company Baker Hughes, US energy firms cut the number of oilrigs for a 13th consecutive week in early December, suggesting drillers are waiting for prices to rebound before returning to the well pad. Drillers removed 10 oilrigs in the week ending 4 December, bringing the total rig count down to 545, its lowest level since June 2010. That decrease brings the total rig count down two-thirds from the 1609 rigs operating at the peak in October last year. In the latest week, drillers removed five rigs in the Permian, two in the Bakken and one in the Niobrara basin. The number of rigs in the Eagle Ford in South Texas remained unchanged.

Canada - September actual: In line with our previous estimate, Canadian oil supplies plunged by 550 kb/d in September from a month earlier on lower oilsands output. Albertan bitumen production dropped by 125 kb/d from a month earlier, while upgraded output declined by nearly 400 kb/d to 770 kb/d on average due to an outage at Syncrude's oilsands upgrader. Production from offshore fields in Newfoundland meanwhile slipped by 20 kb/d, despite a resumption of oil flows at the Suncor operated Terra Nova facility after maintenance, as Exxon's Hibernia field saw output drop by nearly half, to just over 50 kb/d.

Output is expected to have rebounded in October and November, with Canadian Oil Sands announcing in early October normal operations at the Syncrude upgrader following the 29 August fire. Output at the facility rose from 63 kb/d in September to 214 kb/d in October and 323 kb/d last month. Canadian oil production should see continued output gains in coming months as newly commissioned projects continue to ramp up towards capacity. Imperial oil completed its Kearl expansion project in June, which should ultimately double the oils sands project's capacity to 220 kb/d. ConocoPhillips, meanwhile, started up the second phase of its Surmont oilsands project, adding 118 kb/d of new capacity.

Enbridge's newly reversed Line 9 started crude deliveries to refineries in Eastern Canada in December. The 300 kb/d pipeline will bring 250 kb/d of light and 50 kb/d of heavy crude oil from Sarnia, Ontario, to Montreal. Valero reportedly received its first shipment of light crude off the pipeline at its Montreal terminal, where it will ship it by barge to the 265 kb/d Jean Gaulin refinery near Quebec City. Suncor announced it was starting line-fill for its 137 kb/d Montreal refinery. Both Suncor and Valero have said the reversal of Line 9 will allow them to run a 100% North American crude slate. Both of those refineries already have some access to domestic crudes through rail terminals. Canada, a significant net-crude exporter, imported an average of 850 kb/d of crude oil in the first nine months of the year, of which only 315 kb/d, or 37%, was non-US.

Mexico - October actual, November provisional: Preliminary data for Mexico show crude output holding steady in November at just below 2.3 mb/d. Annual declines narrowed further from a high of 275 kb/d recorded in April of this year, to around 85-90 kb/d over the past two months. Pemex's legacy Cantarell field continued to account for the bulk of the drop, declining by around 90 kb/d in October, the last month for which full monthly data are available. In the absence of any hurricane or other significant storm outages affecting output this season, Mexican oil output for 4Q15 was revised up by 20 kb/d since last month's Report. After its precipitous drop of 200 kb/d this year, total output is forecast to decline by 70 kb/d in 2016, to 2.53 mb/d.

In early December, Mexican regulators prequalified 79 firms to participate in the tender to develop 25 onshore mature blocks on offer in the north, central and southern regions. The licensing round, which is the third since last year's energy reform ended state-owned Pemex's upstream monopoly, will be held on 15 December. Mexico hopes the auction, designed to attract smaller companies and local independents, will boost production by 36 kb/d of oil and 223 bcm/yr of gas in the first five years through investment of $620 million. The first two tenders in Mexico's upstream opening drew 25 and 14 companies respectively for shallow water areas.

North Sea

North Sea oil supplies bounced back in October, jumping 140 kb/d from September, according to preliminary data. Maintenance had curbed supplies on both the UK and Norwegian shelf in August and September, though volumes continued to exceed those of the previous year. In all, North Sea oil output was 100 kb/d higher than the same month a year earlier in October, compared with annual gains of an average 300 kb/d over the previous five months. North Sea producers are on track to lift production by 120 kb/d for the year, before field declines and a return to normal maintenance shutdowns, drag volumes down 155 kb/d in 2016, to 2.88 mb/d on average.

Output from the four streams that make up the North Sea benchmark, Brent, Forties Oseberg and Ekofisk, is scheduled to reach a four-year high in January according to a Reuters survey of loading schedules. Loadings are expected to rise to an average of 974 kb/d in January, from 929 kb/d originally reported for December. Loadings of the 12 largest North Sea crude streams tracked by Reuters was pegged at 2.055 mb/d in December, about 30 kb/d less than that of November but up 75 kb/d y-o-y. BFOE loadings finally came in at 1.026 mb/d in December, up 45 kb/d from November.

UK - September actual, October preliminary: After three months of monthly declines, total UK oil output recovered over September and October. Total oil output rose by around 60 kb/d in September after output had fallen by nearly 70 kb/d a month earlier. Preliminary data submitted through the Joint Oil Data Initiative suggest output rose by roughly the same amount also in October to around 960 kb/d.

Detailed field level data show that output from BP's ETAP cluster of fields dropped to near zero in August. The recently commissioned Kinnoul field saw production slip from 36 kb/d in July to 11 kb/d in August. Nexen's Buzzard field saw its highest output 10 months, of 185 kb/d. As the field only produced 7 kb/d in August of last year, total UK production stood an impressive 320 kb/d above its year-earlier levels that month. Annual gains retreated to 100 kb/d over September and October, and were up by an average 80 kb/d for the first ten months of the year.

Norway - September actual, October provisional: Norwegian oil output rebounded by 85 kb/d in October, to nearly 1.95 mb/d. Widespread maintenance had curbed production by 60 kb/d a month earlier, with drops from a number of fields, including Balder (-27 kb/d), Aasgard NGLs(-15 kb/d), Vigdis (-11 kb/d) and Snorre (-12 kb/d). A 15 kb/d increase at the Knarr field provided a partial offset. The field, which started production in March, reached output of 35 kb/d in the latest month for which field level data are available. September output nevertheless stood 65 kb/d above a year prior while October production was equal to that of a year ago.

In early December, independent exploration company Lundin reported first oil at its Edvard Grieg development on the Utsira High area in the North Sea. The field, which is estimated to hold 187 million barrels of oil, is expected to reach plateau production at around 75 kboe/d by the end of next year. Lundin reported that the $2.88 billion Edvard Grieg platform, completed both on time and on budget, will serve as processing host to the nearby Ivar Aasen development, which is due on stream next year.


Latin America

Brazil - October actual: Total Brazilian crude oil production was relatively unchanged from a month earlier in October, at around 2.4 mb/d, despite a recovery in output at the Roncador field. Field level data reveal that output recovered by nearly 70 kb/d from September, when Petrobras shut one of the main production platforms for maintenance. Lower output at a number of other fields, including Lula, which saw lower output for a second consecutive month, provided an offset. The massive Lula field developement nevertheless saw output 130 kb/d above a year earlier, at around 330 kb/d.

As heavy maintenance continued to restrict flows, total oil output was also roughly equal to that of a year earlier in October, compared with average growth of 240 kb/d over the first nine months of the year. In November, Brazilian oil supplies are estimated to have declined y-o-y for the first time since July 2013. Output is estimated to have dropped nearly 160 kb/d as a national oil workers' strike crippled output at offshore installations. The strike, which started on 1 November, lasted three weeks.


Indonesia: With Indonesia reactivating its OPEC membership from 4 December, the country's production levels are again under scrutiny. While no official production numbers are available since 2014, OPEC's only Asian member looks set to miss its production target for the year. An energy official from upstream oil and gas regulator SKKMigas was reported to have said Indonesian oil output would likely fall short of an earlier target of 825 kb/d for the year, with output likely to come in closer to 790 kb/d. The Exxon-operated Banyu Urip field in the Cepu block, which started up earlier in 2015 will reportedly only reach peak output of 165 kb/d in early 2016, several months later than earlier expectations. Malaysia's Petronas meanwhile reported first oil and gas from its offshore Bukit Tua field in November in East Java, Indonesia. The field is expected to produce 20 kb/d of oil and up to 50 MMscf/d of gas. As a result of these latest updates, our estimate for total Indonesian oil production for 2015 has been lowered by roughly 20 kb/d since last month's Report to 830 kb/d. Of this, crude oil is estimated to have accounted for just shy of 700 kb/d, with condensate output of around 90 kb/d and other natural gas liquids (NGLs) of 43 kb/d making up the difference. Total Indonesian oil production is forecast to increase to 855 kb/d in 2016 as Banyu Urip and Bukit Tua ramp up to full capacity.

Indonesian oil production will be removed from Non-OPEC totals and included with OPEC from the January OMR, when December production levels will be assessed. Condensate production will at this time be subtracted from the crude and condensate total and included with NGLs as is custom for all OPEC countries.


Since last month's Report, a revisit of our outlook for Congo's production has resulted in an upward revision of 80 kb/d for oil African oil output next year. Chevron sanctioned its 40 kb/d Lianzi project, which straddles the border of Angola, last month, and Total is set to bring on Phase 1 of its Moho Bilondo phase by the end of the year, adding 40 kb/d to total production. The French major is expected to complete the Moho Nord extension in 2016, adding another 100 kb/d of oil output. Eni meanwhile reported first oil from its Nene Marine field in January 2015. While output from the first phase of the project is expected to yield only 7.5 kb/d, the company plans to bring on the second phase of 40 kb/d in the second half of 2016. Longer term, development of the field will occur in several stages, and Eni is expecting to reach a plateau of over 120 kboe/d. Eni's Litchendjili gas project is also on track to start up in late 2015-early 2016, yielding an additional 20 kb/d of crude, condensates and gas liquids. Congo's total oil production is estimated to add 50 kb/d in 2016, to 305 kb/d in total.

Former Soviet Union

Russia - October actual, November provisional: Russian oil output persisted at record highs in November, underscoring the country's resilience to lower oil prices and sanctions. Crude and condensate production was 10.78 mb/d, unchanged from the previous month. Output growth came from Bashneft, Tatneft and Gazprom Neft, while Rosneft and Lukoil reported continued production declines.

According to Russian investment bank Sberbank, development drilling in Russia expanded 10% from a year earlier over the first 10 months of the year. The highest growth was reported for Rosneft (41%), Bashneft and Tatneft (46% and 128%, respectively). However, despite increased drilling at Rosneft's Yuganskneftegaz (up 51%) and Samotlorneftegaz (up 310%) subsidiaries, total Rosneft production slipped by 1% from a year ago. Lukoil, Russia's second largest producer, meanwhile reported overall cuts in drilling of 26% from a year earlier, with activity at the company's mature West Siberian fields down by 34%. As a result, output in the region, which accounts for roughly half of Lukoil's total output, slipped to 900 kb/d from 965 kb/d a year earlier. Lukoil now expects to resume production growth in Russia no earlier than 2017, following commissioning of its Filanovsky and Pyakyakhinskoye fields.

As discussed in 'Russia robust through 2016' in last month's Report, recent growth in Russia's liquids output has been coming mostly from gas condensates, and in particular from SeverEnergia, a joint venture between Novatek and Gazprom. Novatek will add further output growth in 2016 through its Yargeo joint venture with Nefter Petroleum. The company launched a new oil field in West Siberia on 1 December. The Yarudeyskoye field, which is Novatek's first crude oil project, will have a capacity of around 70 kb/d.

Production is forecast to remain largely flat into 2016 as the commissioning of several greenfields offsets declines at mature fields. In the longer term, output is expected to decline however, as lower prices and capex cuts as well as ongoing uncertainties over the state's tax policies and sanctions trigger production declines.

Azerbaijan - October actual: Azeri oil output dropped by 20 kb/d to 840 kb/d in October, the latest month for which data are available. Preliminary estimates of November supplies imply production slipping further in November, as BP completed a 25-day planned maintenance shutdown at its Chirag platform. Output form the Azeri, Chirag and Guneshli (ACG) fields, which account for about 75% of Azerbaijan's production, averaged 635 kb/d in October. For the year to date, total crude oil and condensate production in Azerbaijan fell 33 kb/d compared to a year earlier, driven by falling oil output from the ACG fields.

In December, a deadly fire at one of Socar's offshore platforms in the Caspian Sea in early December is expected to impact output in coming months. The platform, reportedly accounting for about 60% of Socar's oil output, which totalled 137 kb/d in October, was damaged by a fire after heavy seas damaged a subsea gas line. While little information on the extent of the damage is known at this time, severe storm hampering efforts to stem the damage and evacuate workers could suggest that the platform could mean that the platform might be off for some time. Oil production on 28 wells linked to the facility was suspended and all oil and gas pipelines which link the platform with land were blocked as a safety precaution. Reports emerged later of a fire that struck a second platform.

Kazakhstan - October actual: Kazakhstan's oil production was unchanged at 1.56 mb/d, 85 kb/d below a year ago. Tengiz output was constrained for a third month running, at around 450 kb/d, compared with an average 570 kb/d over the first half of the year. Karachaganak output meanwhile rebounded from September's 28 -month low of 241 kb/d, to 280 kb/d, according to Caspian Investor.

FSU net oil exports FSU net-exports increased by 110 kb/d in October to 9.43 mb/d, a significant 450 kb/d above one year earlier. Unlike recent months, the uptick was driven by surging refined product shipments (+200 kb/d) which more than offset a 100 kb/d drop in crude exports. The fall in crude volumes was driven by a decline in exports from other FSU states. In contrast, Russian exports rose by 210 kb/d to 4.7 mb/d amid close-to-record production and as the Russian Rouble remains weak against the US dollar. The largest monthly decline was posted in deliveries through the CPC pipeline (-220 kb/d) which fell amid maintenance on the ACG group of fields. According to reports, the project to expand the CPC line to 1.6 mb/d is almost complete. However, it will not reach capacity until oil from the much-delayed Kashagan project enters the line; this is currently expected in 2017.

Despite the protracted delays to the start-up of Kashagan, exports of Kazakhstan's CPC Blend crude continue to increase, with record high loadings scheduled for December. With the pipeline and terminal expanded, oil that was previously exported via rail to Black Sea terminals or over the Caspian Sea to Azerbaijan via the BTC pipeline have dwindled. As a result, deliveries out of the CPC Blend terminal north of Novorossiisk have jumped dramatically, breaking the 1 mb/d mark again in November, with even higher volumes scheduled for December. CPC Blend is now the single largest source of crude supply in the Mediterranean, surpassing both Russian's Urals grade and northern Iraqi crude sold by the Kurdish Regional Government.

In the East, the dredging operation to permit Suezmax tankers to call at Kozmino is complete and October saw the first oil loaded onto one of these 1 mb vessels. According to tanker tracking data, both Japan and China are now using these vessels to import ESPO oil. Despite a brief weather-related closure, exports from the terminal rose by 50 kb/d m o m to 650 kb/d, the second highest on record. Looking forward, Russian seaborne loading schedules suggest that exports should rise slightly in November before falling once again in December.

Despite Russian refinery throughputs falling by close to 300 kb/d m-o-m in October, refined product exports hit 3.0 mb/d (+200 kb/d m-o-m), their highest since May. Light products (here included under 'other products') accounted for the bulk of the rise. Naphtha increased by 50 kb/d as deliveries to Northern ports were hiked, meanwhile gasoline exports surged by 75 kb/d, again as flows increased from Northern Russia.

OECD stocks


  • World oil markets will remain oversupplied at least until late 2016, according to our latest demand and supply projections, although the pace of global stock builds should roughly halve next year. An impressive 300 mb of oil is still expected to pile into inventories, but tank tops should not come under pressure due to spare storage capacity in the US and expectations of future capacity additions.
  • OECD commercial inventories drew for the first time in seven months in October to stand at 2 971 mb at end-month. Since the 8.2 mb draw was more gentle than the 20.7 mb five-year average draw for the month, inventories' surplus to average levels widened to 260 mb.
  • Plunging refined product stocks (29.8 mb) pressured inventories and more than offset a combined 21.6 mb build in crude oil, NGLs and other feedstocks. Products drew as OECD refinery runs touched a seasonal low. At end-October, product inventories covered 31.7 days of forward demand cover, 0.6 days below end-September but 2.1 days above one year earlier.
  • Despite middle distillate stocks drawing, by end-October they stood at a significant 43 mb surplus to average levels and covered 33.1 days of forward demand, 3.6 days above the previous year. The majority of the surplus remains in Europe, although logistical bottlenecks are preventing stocks in the Northwest of the continent from draining into central land-locked markets.
  • As crude inventories rose by 5.8 mb at the Cushing Oklahoma storage hub in November, the contango in the NYMEX WTI contract steepened so that the discount of prompt barrels to those for delivery in two months' time widened to $1.30/bbl at end-November from $0.90/bbl one month earlier.
  • Preliminary data suggest that OECD inventories inched down by 1.7 mb in November, far less than the 11.6 mb average draw for the month. Crude oil stocks remained steady after they were buttressed by a counter-seasonal build in the US while refined products drew.

Global overview

Global oil markets remain oversupplied and, according to our latest demand and supply balances, the current imbalance will persist at least until late 2016. Nonetheless, the pace of global stock builds should roughly halve next year with inventories projected to add just over 300 mb. The vast majority of next year's build is expected in the first half of the year before tailing off during the third and fourth quarters.

Despite the scale of these expected builds, global storage capacity should not come under pressure. Much of the excess oil will be soaked up by the 230 mb of new storage capacity slated to be commissioned in 2016. More than half of this will be new SPR capacity in China and India while the rest will be new terminals or expansions of existing commercial storage sites in North America (34 mb), China (26 mb), the Middle East (5 mb), Europe (3 mb) and elsewhere. It should be noted that these volumes do not include new storage at refineries. Although data on storage capacity are scarce, data suggest that current inventory levels in many European states are well below record levels.

Additionally, latest data from the US EIA suggest that US inventories are 70% full, leaving roughly 100 mb of spare capacity. Nonetheless, capacity at key terminals (often the delivery points for oil contracts) could come under pressure as has already been seen in the ARA (Amsterdam-Rotterdam-Antwerp) region and at Cushing. This has the ability to send pricing signals to market participants. Indeed, NYMEX WTI prompt prices have come under pressure in recent weeks as inventories at the Cushing, Oklahoma storage hub have exceeded 80% of working capacity. Meanwhile, time spreads in the ICE Brent forward curve remain at levels that do not support floating storage which suggests that volumes held off ARA and US Gulf are due to unloading delays rather than speculation. Moreover, the spread in the M1 - M3 ICE Brent market stood at about $1.15/bbl in early-December - far less than the $8.00/bbl that was reached during the so-called 'super contango' in 2008-2010.

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

OECD commercial inventories drew for the first time in seven months in October to stand at 2 971 mb at end-month. However, since the 8.2 mb draw was far more gentle than the 20.7 mb five-year average draw for the month, inventories' surplus to average levels widened to 260 mb from a downwardly-revised 248 mb one month earlier.

The monthly draw was driven by plunging refined product stocks (-29.8 mb) which more than offset a combined 21.6 mb build in crude oil, NGLs and other feedstocks. Product holdings were pressured lower by OECD refinery runs that fell close to 900 kb/d to touch a seasonal low amid turnarounds in all regions. This saw declines of 13.2 mb, 10.5 mb and 9.5 mb in middle distillates, motor gasoline and 'other products', respectively. Despite these drops, stock levels of all products bar motor gasoline stood above average by end-October. Since the fall in middle distillates was only about two thirds of the average draw for the month, the surplus of inventories to seasonal levels widened to 43 mb at end-month from 35 mb one month earlier. OECD middle distillate stocks now cover 33.1 days of forward demand, 3.6 days above the previous year. All told, OECD refined product inventories provided 31.7 days of forward demand cover at end-October, 0.6 days below end-September but 1.8 days above one year earlier.

Upon the receipt of more complete data, OECD inventories were adjusted down by 9.1 mb in September, which together with a -0.4 mb amendment to August, saw September inventories build counter-seasonally by 5.1 mb, weaker than the 13.8 mb presented in last month's Report. The revision was centred in the OECD Americas where data came in 7.9 mb lower with the US accounting for the majority (5.5 mb). Meanwhile, stocks in Asia Oceania were revised 4.6 mb lower with Japanese crude oil holdings accounting for 3.9 mb. On the other hand, some offset was provided by European inventories that were adjusted 3.4 mb higher.

Preliminary data suggest that OECD inventories inched down by 1.7 mb in November, far less than the 11.6 mb average draw for the month. Crude oil stocks fell by a weak 1.6 mb during a month they would normally draw by 7.8 mb, after stocks were buttressed by an unseasonal build in the US. Refined products slipped counter-seasonally by 1.6 mb with 'other products' falling by 11.9 mb while motor gasoline rose by 3.2 mb, significantly weaker than the 9.6 average build over the past five years. Meanwhile, middle distillates rose by a steeper-than-average 6.9 mb.

Recent OECD industry stock changes

OECD Americas

During October, commercial inventories in the OECD Americas slipped by 4.0 mb. By end-month, they stood at 1.57 billion barrels, a record 191 mb above average. Refined products (-24.8 mb) plummeted in line with seasonal trends as regional refiners remained in turnarounds while stockholders in the US typically destock refined products during the fourth quarter to lessen their end of year tax burden. As refiners reduced runs and despite domestic production waning, crude oil stocks rose by 21.4 mb, their steepest build since March with data suggesting that transatlantic arrivals into the US remained relatively high given the narrow WTI / Brent spread.

Motor gasoline dropped by a steep 10.7 mb, nearly twice the seasonal average but by end-month still stood at a surplus (5 mb) to average levels. Exports appear to have weighed on stocks with US gasoline shipments hitting 500 kb/d in October, 100 kb/d above one year earlier. Middle distillates drew seasonally by 12.3 mb but levels remained about 1 mb above average. Inventories of 'other products' slipped by 4.9 mb, weaker than the 7.4 mb average draw for the month as demand for propane remained underwhelming in the face of drier-than-usual weather in the US mid-west which decreased agricultural demand. At end-month, refined products covered 30.3 days of forward demand, 1.0 day below one month earlier but 1.9 days above one year ago.

Preliminary weekly data from the US EIA suggest that US inventories built counter seasonally by 4.8 mb in November. Despite refiners exiting turnarounds, commercial crude oil holdings defied seasonal trends and added 4.5 mb to stand a record 500 mb by end-month. However, these volumes include about 120 mb of pipeline fill, cargoes in transit from Alaska and volumes used as lease stocks. When subtracting these volumes and examining the most recent EIA survey of storage capacity (containing data as of 30 September 2015), this equates to almost 70% of working storage capacity.

Inventories at the Cushing, Oklahoma storage terminal - the delivery point of the NYMEX WTI contract - rose by 5.8 mb in November to 59 mb, equating to 81% of capacity. This has pressured NYMEX WTI prompt prices downwards signalling that capacity is becoming a concern. Accordingly, the discount of prompt WTI barrels over those for delivery in two months' time widened to $1.30/bbl at end-November from $0.90 /bbl one month earlier. Capacity in the US Gulf Coast (PADD 3) region stands at about two thirds full. This suggests that the near-40 mb of volumes held in tankers moored in the US Gulf is there due to logistical delays rather than because storage tanks are full.

Refined products inventories inched down counter-seasonally by 1.2 mb in November. This was driven by 'other products' which adhered to seasonal trends, dropping by 10.1 mb as demand for space heating and from agriculture increased. Meanwhile, motor gasoline rose by 2.2 mb, considerably weaker than the 9.4 mb seasonal build for the month. As with October, it is likely that builds in gasoline were tempered amid high exports that hit 600 kb/d, double levels of a year earlier. At end-month, national middle distillates holdings stood 9.3 mb above average with distillate heating oil stocks in the key PADD 1 market standing 75% (27 mb) above one year earlier.

OECD Europe

European commercial inventories bucked seasonal trends and built by 4.0 mb in October. As refiners remained in maintenance, crude oil stocks added a seasonal 4.2 mb with inventories' surplus to average levels standing at 17 mb at end-month. Refined products inched down by 0.3 mb, far weaker than the 11.4 mb five-year average draw. Consequently, the overhang of refined products to average levels ballooned to 34 mb from 22 mb one month earlier. It is likely that stocks drew weakly due to the ongoing problems evacuating products from the ARA region to the inland continent (see European stocks diverge on logistical bottlenecks) with the Netherlands notably posting a weaker than average draw. Middle distillates (+0.6 mb), fuel oil (+0.6 mb) and motor gasoline (+0.4 mb) posted small counter-seasonal declines while 'other products' (-1.2 mb) fell in line with seasonal trends. All told, at end-month refined products covered 42.2 days of forward demand, 1.1 days and 4.5 days above last year and one year earlier, respectively.

Preliminary data from Euroilstocks suggest that European commercial holdings adhered to seasonal trends and inched up by 0.8 mb in November. As refiners continued to come out of maintenance, stocks of crude oil decreased by 1.1 mb. However, despite refinery throughputs remaining above a year ago, this was significantly less than the 3.7 mb average draw for the months as regional crude production remained well above a year ago and imports, especially from Russia and West Africa remained high. The increase in refinery activity saw products rise by 1.9 mb as middle distillates, motor gasoline and 'other products posted builds of 1.2 mb, 0.7 mb and 0.4 mb, respectively. This more-than-offset a 0.4 draw in fuel oil.

European stocks diverge on logistical bottlenecks

Despite European refined product inventories standing a comfortable 34 mb above average at end-October, it has become increasingly apparent that regional stocks in coastal areas and in inland Europe are on diverging paths. The main factor behind this has been the difficulty in draining product held in tanks in the ARA (Amsterdam - Rotterdam - Antwerp) region to demand centres in central Europe.

As a number of European refineries have closed over recent years, the region has become dependent on imports of refined products. Many of these cargoes arrive in the ARA region on large tankers from as far afield as Russia, the US and the Middle East. Subsequently, they are broken into smaller cargoes and shipped to inland demand centres via barges and pipelines. This summer, central Europe experienced a severe drought that saw water levels in the River Rhine dwindle to their lowest since 1976. The river is the main artery to ship refined products from Northwest Europe to inland Germany and Switzerland and the low levels have curbed barge traffic. There are few alternative options; NATO's Central European Pipeline System (CEPS) linking terminals to a number of main airports, petrochemicals plants and demand centres, is now running at close to full capacity while there is insufficient infrastructure and capacity available to transport products by rail.

Accordingly, traders have been forced to anchor vessels off Northwest Europe until they can either secure space on the CEPS line, offload the cargo onto one of the smaller barges which can still sail on the Rhine or until they can put the product into land-based storage. With time spreads in the ICE gasoil contract still insufficient to cover floating storage and demurrage fees, these delays are eating into profits. The bottlenecks have seen stocks in the ARA region soar in recent months so that by end-October, refined product inventories in the Netherlands stood 25 mb above average. Moreover, heading into winter,

it is apparent that much of the surplus stands in middle distillates, with inventories standing 15 mb above average.

While stocks in Northwest Europe have surged, those in Germany and Switzerland have remained relatively low. According to latest data, German refined product stocks have drawn in line with seasonal trends over the summer but since they came from a very low base, remained 1 mb below average by end-October. This is due to refinery throughputs remaining high at 1.8 mb/d while imports remained relatively steady which suggests that imports via northern ports rose to compensate for decreases elsewhere.

In contrast, the difficulty is shipping products had a bigger impact on Switzerland due to the recent closure of the Collombey refinery. This saw Swiss commercial refined product stocks draw rapidly during late summer to hit their lowest September level on record, and with the brief closure of the country's only refinery at Cressier during early-October, the Swiss administration released 1.6 mb of government-controlled motor gasoline and diesel inventories in early-October. Although the Cressier refinery restarted in late October, stocks still remained very low at the time of writing.

With volumes of refined products held in independent storage in Northwest Europe remaining at close to record levels in recent weeks and with no significant rainfall in central Europe over the past few months, this uneven picture can be expected to last for some time to come. Moreover, according to hydrologists, it will take prolonged precipitation for the levels in the Rhine to recover to a level where barge traffic can normalise and thus bottlenecks will not be alleviated swiftly.

OECD Asia Oceania

Industry stocks in OECD Asia Oceania drew by 8.3 mb in October, considerably steeper than the 2.8 mb seasonal decline for the month. This drop was centred in Japan where inventories slipped unseasonably by 5.4 mb, in stark contrast to the 2.7 mb average build for the month. All oil categories fell, notably crude oil decreased seasonally by 1.5 mb, as - despite a number of regional refiners remaining in maintenance (notably in Japan) - buyers ratcheted back crude purchases. Refined products slipped counter-seasonally by 5.4 mb as stocks of 'other products broke seasonal trends and fell by 3.4 mb. Motor gasoline also drew counter-seasonally (-0.1 mb) while middle distillates - including kerosene, the region's space heating fuel of choice - slipped by a broadly seasonal 1.5 mb with stocks ending the month at 66 mb, 3 mb below average. At end-month, regional refined products covered 19.7 days of forward demand, 1.4 days and 1.1 days below end-September and year-earlier levels, respectively.

According to weekly data from the Petroleum Association of Japan (PAJ), commercial oil stocks in Japan continued their recent decline, falling for the third consecutive month, as they lost a steep 7.3 mb in November. Plunging crude (-5.0 mb), pressured stocks lower as refiners hiked throughputs by over 200 kb/d which likely outstripped crude imports. Despite this higher refining activity, refined products declined by a combined 2.3 mb. Only motor gasoline (+0.3 mb) and middle distillates (+0.1 mb) posted builds, while ' other products' and fuel oil drew by 2.2 mb and 0.5 mb, respectively. By end-November, stocks of all refined product categories in the country stood below average.

Recent developments in Singapore and China stocks

Weekly data from International Enterprise indicate that land-based refined products inventories in Singapore slipped by 1.6 mb in November. Falling middle distillate (- 2.5 mb) and residual fuel oil (-1.6 mb) holdings pressured stocks lower and more-than offset a 2.5 mb build in light distillates. The draw in middle distillates was the steepest since October 2011 and at end-November stocks hit their lowest level since early summer. The fall came against the backdrop of regional refinery outages, notably at Shell's 500 kb/d Singapore refinery on Bukom Island and as imports from the Middle East tailed off due to refinery maintenance there. In contrast, light distillates built for five consecutive weeks until late November, which saw 3.1 mb added to inventories as shipments of naphtha from Europe and gasoline from India and the Middle East remained strong.

Data from China Oil, Gas and Petrochemicals (China OGP) point to Chinese commercial crude stocks plummeting by an equivalent 10.8 mb (data are reported in terms of percentage stock change) in October, their steepest monthly decline since January 2010. The decline occurred as refiners hiked throughputs by 100 kb/d after seasonal maintenance. Additionally, crude imports fell by 600 kb/d on a monthly basis. Nonetheless, the difference between crude supply (production minus net imports) and refinery runs remained in positive territory, suggesting a 14.7 mb unreported build. This could be heading to unreported commercial tanks or newly-completed SPR facilities. October was the fifth consecutive month that crude supply has outstripped crude demand and preliminary data suggest that this trend is set to continue in November.

Refined products continued their destocking and drew for the third consecutive month by a combined 13.6 mb. Plunging gasoil holdings (-11.8 mb) led stocks lower, this was likely export led considering underwhelming domestic demand and that the Chinese administration recently changed the tax structure to incentivise refiners to ship excess product abroad. It is likely that Chinese refiners are maximising their gasoline output to satisfy growing domestic demand that in tandem is producing extra gasoil. Gasoline stocks inched down by 0.5 mb while kerosene inventories slipped by 1.3 mb.



  • Benchmark crudes approached seven-year lows in early December after OPEC opted to continue producing at will to defend market share. Unrelenting oversupply in world markets had already weakened benchmarks during November. ICE Brent was last trading at $39.77/bbl with NYMEX WTI several dollars lower at $36.87/bbl.
  • Despite recent price falls, time spreads in futures markets remain at levels that do not support floating storage and signal that storage capacity is not under pressure. The notable exception is NYMEX WTI, where persistent stock builds at the Cushing storage hub have pressured prompt prices lower in comparison to those for later delivery. This has widened the contango to levels that make storing oil attractive to investors.
  • Spot crude oil prices fell in November with European markets among the most affected as supplies of both sweet and sour grades remained ample. Meanwhile, despite declining US LTO production and increasing refinery activity, US prices fell amid stock builds and increases in Gulf of Mexico production.
  • Spot product prices weakened across the board in November. Plentiful inventories and increasing supply as refiners exited turnarounds weighed heavy. Products at the top of the barrel fared best; naphtha cracks hit multi-year highs in all regions buoyed by high petrochemical demand, while gasoline cracks firmed in the Atlantic Basin on export demand.
  • Surveyed freight rates had a generally strong month. Very large crude carriers (VLCCs) on the Middle East to Asia route eased throughout November on the back of falling demand while Suezmax rates fell from their mid-October peak but remained supported by a shrinking tonnage list.

Market overview

Persistent oversupply in world crude markets pressured benchmark crude oil prices in November. This more-than-offset any positive sentiment coming from the ramp up of global refinery throughput as seasonal maintenance eased. Further downward momentum came from OPEC's early-December decision to keep its taps open, with marker crudes touching seven-year lows. ICE Brent was last trading at $39.77/bbl. Meanwhile, NYMEX WTI was pressured by brimming inventories at the Cushing, Oklahoma storage terminal (the delivery point of the contract), with prices sliding by $3.37/bbl on a monthly average basis. The US benchmark was last trading at $36.87 /bbl. Despite the fall in WTI, the spread between US domestic grade LLS and Brent remained narrow in November while the arb to rail midcontinent crudes to the Atlantic Coast remained shut. This saw Atlantic Basin crudes make their way into the US East Coast.

A similar picture prevailed in product markets, where prices fell on increasing supplies as refiners returned from maintenance. Product inventories remain healthy and logistical bottlenecks in northwest Europe are also putting downward pressure on prices (see European stocks diverge on logistical bottlenecks in Stocks section). Reports suggest that vessels are storing ULSD and jet fuel in the ARA region. However, time spreads in the ICE gasoil contract do not make this profitable, suggesting that volumes remain at sea due to discharge delays. OECD refiners in the Atlantic Basin are also continuing to look to non-OECD markets as outlets for their products. This has managed to buttress prices, especially for gasoline, although there is growing evidence that those in Europe and the US are increasingly competing against one another in West Africa and Latin America.

Futures markets

All benchmark futures markets remain in contango (where oil for prompt delivery is cheaper than oil for delivery later). Unlike other crudes, the contango in the NYMEX WTI forward contract steepened in November on persistent stock builds at the Cushing, Oklahoma storage hub that saw stocks there surge to 59 mb, equating to 81% of working capacity. Accordingly, prompt prices fell by $3.37/bbl on a monthly, average basis. Considering that the contango in the first four months of the one-year curve is steeper than the following eight months, this is a signal that capacity at the terminal is currently under pressure, rather than of expectations that US refinery throughputs should rise going forward (US throughputs are projected to seasonally peak in December). It is also likely that the back of the curve was buttressed by expectations that US LTO production will decline. The spread in the M1-M3 contracts widened to about $2.50/bbl in early December compared to $1.75/bbl one month earlier. Meanwhile, the contango in the M1-M12 contracts steepened to about $7.20/bbl in early December compared with $5.40 /bbl in early November. These time spreads cover the cost of land-based storage costs and potentially make the storage of oil profitable for investors.

In contrast, the back and front of the 12-month ICE Brent forward curve dropped in tandem with the spread between the M1 and M12 contracts staying relatively constant at $7.00/bbl between early November and early December. Meanwhile, the M1-M3 narrowed to $1.15/bbl from $1.66/bbl, levels which do not cover the cost of floating storage. Similarly, the contangos in the ICE gasoil contract remained insufficient to cover floating storage which suggests that the vessels which are storing product in the ARA (Amsterdam-Rotterdam-Antwerp) region are doing so for logistical, rather than speculative purposes.

Market activity

Futures markets saw uncertainty growing in November and early December. Disaggregated data from the commitment-of-trader reports showed hedge funds taking increasingly divergent positions in ICE Brent, as the number of spreading positions decreased while net long and net shorts (ie, directional bets) increased. The polarisation of expectations is reflected in implied volatility, a measure of future uncertainty derived from option contract prices, climbing towards the 50% mark.

The US oil fund, the largest exchange-traded WTI-based fund, drew further support in terms of shares from crude benchmark weakness. Open interest in Brent contracts kept growing with respect to WTI, consolidating its trend for both futures and options contracts. Trading volumes for futures contracts were seasonally down for both benchmarks, with WTI remaining the most frequently traded.

Financial regulation

The European Parliament (EP) has informed the European Commission that it is ready to accept a one-year delay to the start-date of financial market regulation legislation; MiFID II, currently taking effect in January 2017. The call for delay originally came from the European Securities and Markets Authority (ESMA), which informed the EP in a speech that the timing to 'build the necessary IT systems' is tight, relating it to the fact that the regulatory technical standards will be finalised 'well into 2016'.

Spot crude oil prices

Spot crude oil prices fell in November with European markets among the most affected. Supplies of both sweet and sour grades remained ample, outstripping the effect of refiners returning from maintenance. In the US, despite falls in domestic LTO production and increasing refinery runs, domestic grades were pressured by stock builds and relatively high production in the Gulf of Mexico. US imports were also boosted by the relative strength of Bakken and a narrower LLS - Brent spread in November. Meanwhile in Asia, distillate-rich light, sweet crudes were buttressed by increased buying as refiners reacted to healthy regional naphtha and middle distillate cracks. On the other hand, sour crudes weakened in Asia in the face of continued  high supplies from the Middle East.

All US marker crude prices weakened in November. On a monthly average basis, WTI lost $3.45/bbl after being pressured lower by persistent stock builds at the Cushing, Oklahoma storage hub. Nonetheless, on an absolute basis this was less than for other Atlantic Basin grades with WTI likely buttressed by refiners in the mid-continent and Gulf Coast coming out of seasonal maintenance and increasing their purchases. Consequently, the WTI - North Sea Dated spread narrowed by $0.80/bbl on a monthly average basis and by early December stood at about $-0.75/bbl.

The WTI - LLS spread has remained narrow over recent weeks and averaged less than $2/ bbl during November. LLS fell amid relatively robust production in the Gulf of Mexico as a number of new fields have recently come on-line while several refineries in the region have been undergoing maintenance. Moreover, considering the relative weakness in North Sea Dated, LLS has traded at a small premium to North Sea Dated over recent weeks. This has seen a number of transatlantic cargoes reach the US.

Imports of transatlantic crudes, notably from West Africa, were also boosted by the continued closure of the arbitrage opportunity to rail Bakken crude from North Dakota to refineries on the US Atlantic Coast. This closure came as Bakken rose to a premium versus WTI as its production declines. This premium hit a record $2.70/bbl in mid-November (excluding freight). Considering the cost of shipping West African crudes to the US has averaged about $2.60/bbl so far this year, this suggests that if the Brent - WTI/LLS spreads remain narrow and the premium of Bakken versus WTI persists then these transatlantic imports will continue.

Northwest European light crude markets remained under pressure in November as, despite regional refiners exiting maintenance and hiking throughputs, North Sea production remained healthy while supplies of competing crudes, notably from West Africa, were ample. Regional benchmark North Sea Dated plunged by $4.25/bbl (8.8%) on a monthly average basis, the steepest fall among benchmark light crudes. By early-December it approached its lowest level in seven years and was last trading at $41.52/bbl. A similar picture prevailed in the Mediterranean where supplies of light grades from North Africa and the FSU, including CPC and BTC blends, are increasingly competing for market share with producers cutting prices accordingly.

European sour crude markets remained anaemic in November as FSU crude exports continued at close to record levels while Middle Eastern producers are increasingly targeting central and southern European refiners ahead of an expected increase in Iranian barrels next year (see Sour wars in OMR dated 13 November 2015). This has seen European sour benchmark Urals come under increased pressure recently as Russian producers struggle to stay competitive. Accordingly, the discounts of Urals versus North Sea Dated widened steadily during November with the differential for customers in Northwest Europe hitting -$3.70/bbl in mid-November, its widest since March 2012. Nonetheless, the differentials once again narrowed in late month after the release of the December loading program, showing a sharp decrease in volumes. In the East, Russian ESPO held its price relatively well, which saw its premium versus Dubai remain at about $5.00/bbl.

West African crudes are finding homes farther and farther afield. Tanker tracking data indicate that Nigerian barrels are now regularly being processed in refineries in Europe, the US Atlantic Coast, Latin America and Asia. Nonetheless, state company Nigerian National Petroleum Company (NNPC) is having trouble clearing an overhang of barrels, despite relatively strong gasoline cracks in Europe and the US. November saw NNPC cut the price of its flagship grades versus Dated Brent which cleared the overhang of November's barrels. However, at the time of writing, some of December's loading program remained unsold with January's program sailing onto the horizon.

East of Suez markets continue to be awash with sour crudes. Regional benchmark Dubai paired its losses with North Sea dated and weakened by $4.15/bbl on a monthly average basis which saw the spread between the two grades remain at close to $2.50/bbl. On the other hand, as Asian refiners take advantage of relatively robust naphtha and middle distillate cracks, the light crude market in the region is far more buoyant. Light, sweet Malaysian Tapis (which has a comparatively high naphtha yield) weakened by $2.59/bbl in November, far less than for other regional grades. It consequently saw its premium versus Dubai exceed $6.00/bbl, its widest since end-2013.

Saudi Aramco cut the official selling prices for its crude delivered to Asian customers in January in line with the weaker Dubai market. However, the discount of Arab Light to Dubai narrowed compared to previous months due to stronger refinery margins in the region that have been lifted by exceptional naphtha cracks. Although The Kingdom cut the discount of Arab Light versus BWAVE for its European customers, prices remain competitive as it battles for market share with extra Iraqi volumes and Russian Urals. 

Spot product prices

Spot product prices weakened across the board in November as plentiful inventories and increasing supply as refiners exited turnarounds, weighed heavy. Products at the top of the barrel fared best with naphtha cracks hitting multi-year high in all regions buoyed by high petrochemical demand, while gasoline cracks firmed in the Atlantic Basin on export demand. Meanwhile, middle distillates prices and cracks remained weak across all markets amid warmer-than-usual weather and high stocks.

In spite of the onset of winter, by early December, gasoline prices continued to hold a premium versus diesel in all markets except Northwest Europe. This reflects not only the weakness of middle distillates but also the strength in gasoline markets over the past few weeks. In Europe, gasoline spot prices held their levels despite the falls in crude prices after they were buttressed by export demand from the US Atlantic Coast, Latin America and West Africa. European cracks firmed by $4.44/bbl on average in November, the sharpest increases across surveyed products and regions on a monthly average basis. However, these gains could not be sustained and by early December, prices dropped as export demand waned and stocks built. In contrast, US gasoline markets remained weak as refiners came back from maintenance and export demand from Latin America and West Africa was hit by competition from European refiners. Consequently, spot prices on the US Gulf Coast slid by $2.07/bbl on average in November while despite LLS weakening, cracks only inched up by $0.82/bbl on average. Meanwhile, in Asia, gasoline cracks softened by $0.39/bbl on average as prices were hit by Indonesia cutting back its imports as one of its refineries returned from maintenance and as Singapore light distillate stocks built by a steep 3.1 mb over November.

In late November, Asian naphtha cracks breached $10/bbl their highest levels in over ten years on strong demand from petrochemical producers in Korea, India, Singapore and China. This surge in demand saw spot naphtha prices in Singapore hold steady (the only product across surveyed regions to do so) while cracks were further buoyed by the relative weakness of benchmark Dubai crude. Cargoes were also drawn to the region from Europe and the Middle East as arbitrage opportunities remained abundant. Accordingly, cracks in Northwest Europe firmed by $2.96/bbl on a monthly average basis. Mediterranean refiners saw naphtha cracks rise by a steeper $3.68/bbl due to the relative weakness of Urals. By early-December, European naphtha cracks stood at about $5/bbl, their highest in over five years.

Middle distillate markets remain weak in all surveyed regions with rising supplies, high inventories and unseasonably warm weather maintaining the downside pressure on prices. Notably, inventories in PADD 1, the world's largest heating oil market, continued to build in November and by end-month stood 75% above one year earlier. Additionally, in the Gulf Coast region November was reportedly one of the warmest on record. Accordingly, monthly average ULSD and heating oil spot prices on the Gulf Coast dropped by $2.67/bbl and $3.89/bbl, respectively, with ULSD cracks standing at their lowest levels in nearly twelve months by early December. In Europe, persistently high stocks in the ARA region (amid logistical bottlenecks) and amid a flood of imports from the US and Russia continue to pressure ULSD prices downwards. By early-December, European spot ULSD prices sat at around $50/bbl, their lowest since early 2009. These low prices shut the arbitrage windows to the region from both the US and Asia.

Despite falling prices, Asian fuel oil markets strengthened in November as bunker fuel demand reportedly improved and stocks in Singapore posted their steepest draw in nearly six years. Consequently, HSFO spot prices in Singapore dropped by $2.16/bbl on average with cracks improving by about $2.00/bbl to their highest levels in nearly six months. In contrast, Northwest European prices were hit by high freight rates that narrowed the arbitrage between the region and Asia. This saw regional HSFO prices fall by $4.55/bbl on average. By early December, they stood at close to $23/bbl, their lowest levels in nearly seven years. In percentage terms, this equated to double digit drops, the steepest falls posted across surveyed regions and products. The picture in the Mediterranean was slightly better amid demand for fuel oil from regional refiners and those in North Africa.


Surveyed freight rates had a generally strong month. Very-large-crude-carriers (VLCCs) on the Middle East Gulf - Asia route eased throughout November on the back of falling demand. However, rates rebounded in early December as a tightened tonnage list met with increasing vessel demand ahead of end-of-year holidays. Suezmax rates came off their mid-October peak but remained supported at the $15 /mt level by a shrinking tonnage list, according to reports. A narrowing of the LLS - Brent spread in mid-November prompted three cargoes to be shipped across to the US from West Africa. Aframaxes remained at sustained level, just below the $10/mt mark, sustained by close-to-record Russian exports from Baltic ports and healthy North Sea production.

Product rates on the 37 Kt UK - US Atlantic Coast route gained traction throughout November on higher demand from the US market as the gasoline arbitrage window opened. Unplanned outages in Mexico contributed to tanker demand in the 38 Kt Caribbean - US Atlantic Coast market, adding to tightness. Rates on the Middle East Gulf - Japan 75 Kt route eased in November as the arbitrage opportunity with the Gulf narrowed, which had previously sustained rates. Even as the differential came down from $6 /bbl to around $3/bbl, overall volumes shipped into the region remain sustained. Widening naphtha differentials to Europe jumped the $6/bbl mark, and drew more fixtures to Asia from west of Suez markets, reportedly tightening vessel supply and supporting freight rates in early December.



  • Global refinery runs rose by 1.4 mb/d in November to 79.9 mb/d as the maintenance season drew to a close. Oil products stocks remained comfortable during the period, which could threaten margins as refiners return to full speed.
  • Throughput for 4Q15 and 1Q16 are estimated at 79.7 mb/d and 79.6 mb/d, respectively, with yearly growth of 1.4 mb/d for each quarter. The Middle East is the predominant growth contributor, followed by other Asia, China and Europe. The resulting global refining utilisation rates are the highest since 2007.
  • Margins in November were healthy, though lower in the US than in October, but higher elsewhere. Light distillates continued to be the main support, showing unseasonal strength. By early December, cracks started to fall in Europe, sinking hydroskimming margins into negative territory. If this trend persists, we might see lower throughputs later on.

Global refinery overview

Global refining is emerging from autumn maintenance with the usual reports of delays in restarting units and various unplanned outages. Crude stocks have risen during this period and product stocks remain at very comfortable levels in all regions - although they have come off slightly. This is because the estimated 4Q15 global refining utilisation rate of 81.5% was at its highest since 2007. If refinery margins remain at the healthy levels seen in November, stocks should test highs again. However, early December saw a weakening of margins. Gasoline, and even more naphtha, remained seasonally strong, but gasoil faltered. Whether light distillates can continue supporting margins through Northern hemisphere winter is questionable.

In September, global crude runs eased to 79.2 mb/d, still 1.7 mb/d higher year on year (y-o-y). Europe and the Middle East are each responsible for about half of this yearly growth.

In October, the most recent month for which a complete set of monthly data is available, OECD refiners posted a 0.8 mb/d month on month (m-o-m) decrease in crude throughput bringing it to 37.1 mb/d - 0.7 mb/d above a year earlier. OECD Europe represents half of this growth, followed by Asia Oceania and the Americas. Preliminary and estimated figures for November show OECD runs picking up to 37.8 mb/d.

Global crude run estimates for 4Q15 have been lowered by 270 kb/d since last month's Report, to 79.7 mb/d, and 1Q16 crude runs are now predicted at a similar level. Downward revisions in 4Q15 turned up in most non-OECD regions bar the FSU and OECD Asia Oceania, while the Americas and Europe both showed 0.1 mb/d positive revisions.


Gasoline markets were extremely volatile in November, signalling the changes in refining margins. In the first half of the month, gasoline cracks briefly surged to very high levels both in the US and Europe. Naphtha cracks rose on solid demand to close to $5/bbl in Europe and $10/bbl in Singapore, the highest level since June 2007. Middle distillates were also surprisingly supportive, with cracks rising both in Europe and Asia, but easing in the US. Heating oil was particularly weak with a crack of only $5/bbl. In the Mid-continent, the strength showed by all products in October - a likely result of sustained local maintenance - subsided over November. The product differentials between the Mid-continent and the US Gulf, which were in a $10-15/bbl range in October, disappeared in November. In Singapore, fuel oil cracks narrowed by around $2/bbl as stocks were drawn down to a four-month low. As a result, regional margins took very different paths. In Europe and Singapore, they increased by a couple of dollars a barrel, lifting hydro-skimming margins into the black. Urals margins in Europe also rose even though Urals differential to Brent narrowed. Profits decreased in the US, especially in the mid-Continent, although margins there were still above the US Gulf.

By early December, diesel and heating oil cracks in the US and gasoline cracks in Europe were under pressure, with NWE gasoline cracks below $10/bbl on indications of high storage levels.

OECD refinery throughput

OECD refinery runs decreased by 0.9 mb/d in October from September to 37.1 mb/d. Most of the decrease took place in the Americas, with a large maintenance program in the US affecting crude runs. US Weekly statistics suggest that Americas crude runs rebounded from 18.3 mb/d to 18.9 mb/d in November. Maintenance was very limited in Europe and in Asia Oceania. October OECD throughput was revised up by nearly 0.4 mb/d from last month's Report. The largest upward revisions took place in Canada, Belgium, the US and Greece while Japan was revised downward by 0.1 mb/d.

OECD throughput for 4Q15 was revised slightly up to 37.7 mb/d due to final figures for October and provisional numbers for November. Throughput in 1Q16 is expected to be 0.2 mb/d lower at 37.5 mb/d.

OECD Americas

In the OECD Americas, crude throughput dipped substantially in October to 18.3 mb/d, despite a 0.3 mb/d upward revision spread on the four countries of the region. In the United States, November weekly data suggest that refinery activity picked up again to 16.1 mb/d following levels of 15.5 mb/d in October. In California, Exxon received the clearance to restart the gasoline units at its Torrance refinery, which had been partly offline since February, and repairs should be completed in 1Q16. In Canada, Irving's St John refinery prolonged its maintenance. Mexican crude runs are still around 10% below 2014, as crude exports prevailed over local refinery supply.

The US Environmental Protection Agency (EPA) finally issued biofuel mandates for 2016 at 1.18 mb/d. This was slightly higher than proposed in May, which pushed up Renewable Identification Number (RIN) certificate prices, adding some cost on imported gasoline. 

OECD Europe

Europe's crude processing slid to 12.3 mb/d in October, 0.17 mb/d lower m-o-m. The water level on the Rhine increased briefly, but demand and crude runs in Germany remained muted. Spain, Italy, France and Turkey had sustained crude runs, with significant y-o-y growth.  In Rotterdam, Shell's Pernis refinery was partly shut in November.

OECD Asia Oceania

In OECD Asia Oceania, October crude runs were stable at 6.5 mb/d, after a 0.17 downward from last month's Report, mostly in Japan. October marked peak maintenance in Japan, with 550 kb/d offline. According to weekly figures, November runs will increase to 3.2 mb/d, from 3.0 mb/d in October.

Coming just after the announcement of the merger between Idemitsu Kosan and Showa Shell, Japan's two largest refiners JX Holding and TonenGeneral signed an Memorandum of Understanding to integrate their operations. These two mergers would significantly accelerate the consolidation of the refining and retail sectors in Japan, with one company having a 53% gasoline market share and the other 30%, with a likely restructuring of the refining capacity of both merged companies. 

Non-OECD refinery throughput

In September, non-OECD refinery throughput decreased by 0.7 mb/d to 41.3 mb/d, after a negative monthly revision of 0.14 mb/d. The FSU had the largest maintenance (1.3 mb/d) which continued into October.

Estimated quarterly figures for 4Q15 reach 41.7 mb/d after a downward revision of 0.4 mb/d split between Latin America, the Middle East and Other Asia. The y-o-y growth in the non-OECD is now estimated at 1.0 mb/d in 4Q15.

In China, October crude runs edged up by 1.7% m-o-m to 10.42 mb/d. Internal ex-refinery margins have dipped a little, but remain comfortable and justify running full speed, with continuing middle distillates exports. Sinopec will have a large maintenance program in November-December, with shutdowns planned in seven refineries (Dongxing, Beihai, Guangzhou, Qingdao, Luoyang, Tianjin and Fujian)

Due to the allocation of crude import quotas to seven teapot refiners, China has raised the total amount of imported crude that non-state refiners can process from 0.75 mb/d to 1.75 mb/d in 2016. It also announced that it would grant them oil products export quotas. The utilisation rate of teapot refiners with crude import quotas is reported to have increased from 30% to 80%, but logistical hurdles will limit product exports for most.

Also to be noted, from January, the gasoline and diesel retailed in Eastern China will have to meet China V specifications, with a 10 ppm sulphur limit.

September throughput in Other Asia dipped to 10.0 mb/d, just 0.1 mb/d lower m-o-m, with maintenance limited to 0.5 mb/d - of which 0.3 mb/d was in India. In India, IOC's Chennai refinery was shut down by floods. The Paradip refinery has started but it seems that it will only fully ramp up progressively over 2016. The Singapore Shell refinery remains partly offline, which will last until January. Singapore stocks decreased both for middle distillates and fuel oil, which helped sustain local refining margins.

The Philippines, a large importer of gasoil (kt200-300/month) will be shifting its specification of on-road diesel from 500 to 50 ppm in January. In Indonesia, Saudi Aramco signed an agreement with Pertamina to share ownership, operations (including crude supply) and upgrade of the 350 kb/d Cilacap refinery.

FSU October crude runs edged down to 6.9 mb/d, a 0.3 mb/d m-o-m decrease and 0.5 mb/d lower y-o-y. Autumn maintenance reached 1.3 mb/d in September and 1.1 mb/d in October, the second highest level in the past eight years. Russian throughput recovered from 5.2 mb/d in October to a provisional 5.8 mb/d in November with maintenance nearly over.

With lower oil prices, the Russian tax manoeuver takes its toll on oil product exports

The so-called "tax manoeuver" or the latest Russian export duties reform, voted on in end 2014 for a 2015 implementation, has already been discussed in previous Reports. It called for:

  • A fast-decreasing crude oil export duty, compensated by a rising Mineral Export Tax (MET). But Russian authorities recently decided not to reduce the formula coefficient in 2016.
  • An export duty on oil products calculated as a percentage of crude oil export duty, but with such percentage decreasing rapidly to 30% for light products and increasing to 100% for heavy products (fuel oil and VGO)

For oil products, the strategy was to keep incentivising companies to refine crude oil locally and export light products rather than export the crude itself, while discouraging exports of fuel oil. This implied that refiners would have to invest in units to upgrade fuel oil into higher valued light products. Nine months on, what are the consequences of this "tax manoeuver" for refiners?

  • Expected consequence: a decrease of fuel oil exports. Starting in spring 2015, fuel oil exports have plummeted by 25%, to 1.3 mb/d. However, clean products (light and middle distillates) exports also dropped from their winter highs. Still, fuel oil share of products exports decreased from 59% in January-September 2012 to 55% in 2013, 52% in 2014 and only 47% in 2015. This is a result of the completion of a number of upgrading units in the past few years.

  • Unexpected consequence: a reduction of the product export "subsidy" and of the overall product export level. The latest tax reform probably did not anticipate such a decrease in the price of Urals crude exports, from around $105/bbl in mid-2014 to around $45/bbl mid-2015, which cut export duties by 75% to 80%. As a result, the diesel export "subsidy" (the difference between the level of export duties between crude and diesel), instead of being stable as expected with stable oil prices, dropped from $19/bbl to $7/bbl. This $12/bbl "opportunity loss" is very significant when compared to usual cracking refining margins which generally hover in a $5-10 /bbl range, and likely explains why the overall level of exports dropped from 3.6 mb/d in 1Q2015 to 2.7 mb/d in 3Q2015 (the average over 2012-2014 being 3.1 mb/d).

Middle East crude runs in September were revised down slightly to 6.9 mb/d, 0.3 mb/d higher y-o-y. Saudi Arabia's throughput recovered to 2.5 mb/d but will feel the impact of large shutdowns in the next two months.

In Latin America, September throughputs edged lower to 4.6 mb/d after a small downward revision of 0.1 mb/d. In Venezuela, the Paraguana refining complex suffered from an unplanned outage but had re-started by end-October, and the 250 kb/d El Palito plant was on maintenance throughout November. Refinery runs in Brazil during November were reportedly reduced due to the strike affecting some refineries and limiting crude supplies.

In Africa, September crude throughput edged down by 0.1 mb/d to 2.1 mb/d. In early December, Algeria's state-run oil company Sonatrach issued a tender for 300 kt of gasoline and 360 kt of diesel over January-February, with speculation swirling over whether all its refineries will be up and running during this period. Morocco's Samir refinery is still down with its parent company in receivership.