Oil Market Report: 19 January 2016

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  • Markets were routed in December as persistent oversupply, bloated inventories and a slew of negative economic news pressured prices so that by mid-January crude oil touched twelve-year lows. At the time of writing, both ICE Brent and NYMEX WTI had sunk below $30/bbl. ICE Brent was last trading at $28.86/bbl with NYMEX WTI forty cents higher at $29.26/bbl.
  • Exceptionally mild temperatures in the early part of the winter in Japan, Europe and the US, alongside weak economic sentiment in China, Brazil, Russia and other commodity-dependent economies, saw global oil demand growth flip from a near five-year high in 3Q15 (2.1 mb/d) to a one-year low in 4Q15 (1.0 mb/d). The outlook for 2016 has demand growth moderating to 1.2 mb/d.
  • Global oil supplies expanded by 2.6 mb/d in 2015, following hefty gains of 2.4 mb/d in 2014. By December, however, growth had eased to 0.6 mb/d, with lower non-OPEC production pegged below year-earlier levels for the first time since September 2012.
  • OPEC crude output eased by 90 kb/d in December to a still-lofty 32.28 mb/d, including newly-rejoined Indonesia. Iran, now relieved of sanctions, insists it will boost output by an immediate 500 kb/d. Our assessment is that around 300 kb/d of additional crude could be flowing to world markets by the end of 1Q16.
  • Global inventories rose by a notional 1 billion barrels in 2014-15 with the fundamentals suggesting a further build of 285 mb over the course of 2016. Despite significant capacity expansions over 2016, this stock build will put storage infrastructure under pressure and could see floating storage become profitable.
  • Global refinery runs averaged 79.5 mb/d in 4Q15, down 0.3 mb/d on last month's estimate due to lower-than-expected throughputs in Other Asia and a very high maintenance schedule in October. Global refinery margins weakened in December as middle distillate cracks fell and overwhelmed the resilience of gasoline and naphtha.

Can it go any lower?

Iran's return to the oil market confirms what has been inevitable for six months since the P5+1 deal was signed in Vienna last July. Now the suspense is over, attention switches to the impact on oil market balances and the likelihood of further declines in oil prices following a torrid start to 2016. In the first two weeks of the year, both WTI and Brent settled below $30/bbl and a procession of investment banks has  warned that oil prices "could" fall to $25/bbl, $20/bbl or, in one case, $10/bbl. From the world of Big Oil, BP eliminated another 4,000 jobs and Petrobras slashed its five-year investment programme by 25%, clear signs - and there are many other examples - of expectations for a long period of lower prices.

Some analysts argue that the easing of sanctions on Iran is already "priced in" to the market. There are considerable uncertainties around the quality and quantity of oil that Iran can offer to the market in the short term and the not inconsiderable challenge of finding buyers willing to take more oil into an already glutted market. However, if Iran can move quickly to offer its oil under attractive terms, there may be more "pricing in" to come. Time will tell. (See 'Iran is back'.)

In publishing our first OMR of 2016 we conclude that the oil market faces the prospect of a third successive year when supply will exceed demand by 1.0 mb/d and there will be enormous strain on the ability of the oil system to absorb it efficiently (see 'Global oil storage capacity to surge in 2016 and beyond'). On what we must struggle to call the bullish side, non-OPEC oil production is projected to fall by 600 kb/d; but this will inevitably be largely offset by higher production from Iran. Nor can we expect other Middle East producers to stay on the sidelines; their regularly stated policy is to protect market share and allow the price to find its level. Saudi Arabia's sharp increase in domestic fuel prices is a sign that OPEC's top producer is preparing for a long period of lower prices.

Although 2015 saw one of the highest volume increases in global oil demand this century, we have long believed that this could not be repeated in 2016. But, with crude oil prices plunging below $30/bbl, must we expect some boost to the rate of growth in 2016? Unfortunately, the New Year has been awash with pessimism about economic growth. This was starkly illustrated when the World Bank said on 6 January that growth in developing countries in 2015 was the slowest since 2001 and today's varied travails in Brazil, China, and Russia mean that 2016 will see little, if any, improvement. The strength of the dollar will inevitably impact on local currency costs for oil importers and thus exert pressure on oil demand growth. For China, for so long the engine of global demand growth, we expect demand to increase by 350 kb/d, below the recent trend level.

Although we do not formally forecast OPEC oil production, in a scenario whereby Iran adds 600 kb/d to the market by mid-year and other members maintain current output, global oil supply could exceed demand by 1.5 mb/d in the first half of 2016.  While the pace of stock building eases in the second half of the year as supply from non-OPEC producers falls, unless something changes, the oil market could drown in over-supply. So the answer to our question is an emphatic yes. It could go lower.



  • After achieving very high growth in the middle of last year, gains in global oil demand will ease back towards their long-term trend in 2016. This adjustment commenced in 4Q15 - as anticipated in recent editions of this Report - on notable slowdowns in Europe, Japan, the US and China.
  • The exceptionally mild temperatures in December in Japan, the US and Europe, alongside weaker economic sentiment in China, Brazil, Russia and other commodity-dependent economies, saw year-on-year (y-o-y) oil demand growth flip from a near five-year high of 2.2 mb/d in 3Q15 to 1.0 mb/d in 4Q15. Although we had forecast a swing, the 4Q15 slowdown surprised us with its severity, shaving 0.2 mb/d from 4Q15 global demand estimate, to 95.1 mb/d.
  • Subsidy cuts in the Middle East will curb the short-term demand outlook, with prospective Saudi Arabian oil demand growth more than halving in 2016 on higher product prices and a deteriorating macroeconomic backdrop.
  • The latest demand data from the US confirm the 4Q15 slowdown. Down by 125 kb/d compared to the corresponding period last year, to 19.4 mb/d, oil demand in the US eased back as industrial oil use weakened alongside slowing gains in gasoline.
  • Estimates of Chinese oil product demand suffered a stark slowdown in November, as weakening growth in the Chinese economy finally dampened oil demand. Particularly weak performances in gasoil and residual fuel oil led November's correction, more than offsetting the still relatively robust conditions in LPG and naphtha.
  • Recent weakness seen in Brazilian oil demand continued into November, with even gasoline joining the malaise. Brazil's ailing economy is seriously impacting demand for all products.

Global Overview

To regular readers of this Report the 4Q15 slowdown is not a surprise but its pace certainly is. Peaking at a near five-year high of 2.2 mb/d y-o-y in 3Q15, global oil product demand growth dramatically eased to 1.0 mb/d in 4Q15, 0.2 mb/d below the forecast in last month's Report. Warmer early-winter northern hemisphere temperatures, compared to the year earlier, provided some of the impetus for growth decelerating, as did weakening macroeconomic conditions in China, Brazil, Russia and other commodity-dependent economies.

In 2016 we expect a continuation of the recent weakening in demand growth, albeit minus the warm-weather handicap. Growth should accordingly average around 1.2 mb/d in 2016, taking deliveries up to 95.7 mb/d for the year as a whole. As in 2015 gasoline is projected to represent the largest part of the growth - at 37% - with gasoil well behind - at 19% - as industrial growth lags the consumer and service sectors.

Warmer early-winter weather suppresses OECD oil demand

With northern hemisphere temperatures in 4Q15 notably above normal, the traditional fourth quarter demand boost was absent. A normally reliable trend in the fourth quarter of each year is higher deliveries over the third quarter, arising from additional northern hemisphere space heating. Reversing the previous six-year pattern, 4Q15 global oil product demand fell compared to 3Q15 on this anaemic early-winter heating stimulus.

OECD countries, with a bias to the northern hemisphere, habitually carry the largest 4Q premium, but OECD demand data suggests a complete turnaround. Having averaged quarter-on-quarter (q-o-q) growth of +190 kb/d over the previous five years, 4Q15 saw OECD demand contract by 375 kb/d. Gasoil was heaviest hit - it is the space heating liquid fuel of choice in most OECD economies - with 4Q15 q-o-q demand up by only 60 kb/d. This is 455 kb/d below the five-year average.

In the major OECD heating oil markets (US, Germany, France and the UK) space heating requirements eased as the number of heating-degree days fell by 18.7%, 6.0%, 4.3% and 17.5% respectively. These countries accordingly saw their combined q-o-q gasoil demand growth ease back by around 0.3 mb/d versus the previous five-year average, although other sectors of the economy will have influenced gasoil demand. Japan, where kerosene is the prominent space heating oil product, saw a further 35 kb/d demand discrepancy, versus the five-year average, and a 21.8% drop in the number of heating-degree days.

With tentative projections of colder winter weather conditions in 1Q16 the traditional first quarter slide (previous five year average down 0.4 mb/d q-o-q) may ease as the heating requirement rises.


A combination of warm weather (see Warmer early-winter weather suppresses OECD oil demand) and stuttering macroeconomic conditions ended the previous three-quarter rally in OECD oil demand. Falling by 75 kb/d in 4Q15, compared to the year earlier, after respective gains of 645 kb/d, 455 kb/d and 720 kb/d in the previous three quarters, overall OECD momentum was stalled by dramatically deteriorating gasoil/diesel demand. Indeed, for 2016 little prospect of growth is seen with total deliveries expected to maintain the status-quo around 46.2 mb/d. In 2016 demand will be flat for gasoline, jet/kerosene and gasoil, while absolute gains in LPG (including ethane) - attributable to additional petrochemical demand - are offset by forecast declines in residual fuel oil use.


Total oil deliveries across the OECD Americas flattened in November at 24.4 mb/d, as the US lost momentum. Rising by a tiny 0.2% y-o-y in November it is clear that growth in the final third of 2015 turned negative. Sharply declining gasoil demand was the key catalyst due to warm weather and stuttering industrial activity. Falling gasoil demand was accompanied by sharply decelerating gasoline demand growth.

Having risen by an average of 2.3% y-o-y through the first nine months of 2015, the latest official data for the US shows a 1.7% y-o-y decline in October. Preliminary estimates for November and December suggest that growth is disappearing (-0.1% average, y-o-y) through the final two months of the year. Gasoline and jet fuel have been the two most sizeable contributors to US demand growth, but even here support has started to wane recently. Gasoline and jet/kerosene demand rose by 1.0% and 4.2%, respectively, in 4Q15 compared to the average gains of 3.0% and 4.5% posted 1Q15-3Q15.

In the US, the Institute of Supply Management's Manufacturing Purchasing Managers' Index (PMI) fell into negative territory in November and December, reflecting the continuing deterioration in US manufacturing sentiment that started late in 2014. Poorer industrial sentiment is immune to persistently lower oil prices, with US gasoil demand down sharply in 4Q15, -175 kb/d y-o-y to 4.0 mb/d. Alongside the deteriorating PMI numbers, the latest industrial output numbers from the US Federal Reserve showed a 1.2% contraction in November, the first such y-o-y slide since the Great Recession.

Pulled down by some very weak diesel demand numbers, Mexican oil deliveries averaged 2.0 mb/d in November, roughly unchanged on the year earlier. Down by 35 kb/d y-o-y in November, Mexican gasoil/diesel demand stuttered but residual fuel oil demand rose by 30 kb/d, to 155 kb/d as power sector usage rose strongly. The Mexican Secretaria de Energia reported that notoriously volatile power sector oil use rose by roughly one-quarter compared to a year ago, reflecting sharp decelerations in coal use. Strong gains in the transport sector, largely gasoline, also provided a substantial offset to weak diesel demand. Looking ahead to 2016, deliveries should flatten at around 2.0 mb/d, as persistently lower oil prices dampen crude export revenues and activity in the domestic oil industry.

The latest Canadian demand numbers reflect the recently declining OECD American demand trend, albeit with October's 2.4 mb/d number a 40 kb/d upgrade from our number published last month. Picking up somewhat on rising demand from the petrochemical industry, gains in LPG and jet fuel demand eased the full scale of October's contraction, with dramatic declines seen in gasoil, residual fuel oil and gasoline. 


We have seen a change to the 2014 baseline data with a modest change of 70 kb/d to a revised total European demand level of 13.5 mb/d. The revision was chiefly attributable to the Turkish authorities releasing a more accurate jet fuel demand estimate. Data for 2015 was not affected by the revision. In 4Q15 we saw demand falls in France (-4.9% y-o-y), Germany (-0.9%) and Poland (-0.3%) that more than offset the strength seen in Italy (+4.7%), the UK (+2.2%) and the Netherlands (+3.3%). Overall European oil deliveries eased to an estimated 13.6 mb/d in 4Q15, 585 kb/d below 3Q15's four-year peak but still 95 kb/d up on the corresponding period a year ago. The most dramatic European laggard in 4Q15 was France with a near 80 kb/d y-o-y decline attributable to weak industrial demand, with declines seen in gasoil, LPG, residual fuel oil and 'other product' demand. Growth is unlikely to resurface, any more than intermittently, in either France or OECD Europe in general in 2016.

Lifted by the recent strength demonstrated by the UK economy, oil deliveries posted their second successive gain of more than 60 kb/d taking demand up to 1.6 mb/d in October. Rising by 1.7% y-o-y in the same month, according to the Office for National Statistics, industrial output across the wider UK economy continues to rise at a reasonably strong rate, stimulating robust gains in gasoil and LPG. Deliveries look to have risen by around 25 kb/d in 2015, to 1.5 mb/d, supported by sharply falling prices and relatively strong economic growth. Demand will be flat in 2016 as the impetus from previously falling oil prices wanes and economic growth moderates. 

Asia Oceania

A continuation of the declining OECD Asia Oceania demand trend was seen in 4Q15, as deliveries averaged 8.3 mb/d, 60 kb/d down on the year earlier. The main factor was declines in Japanese residual fuel oil, 'other products' and jet/kerosene demand. In Japan the recent weakening in the economy, coupled with milder winter weather conditions (see Warmer early-winter weather suppresses OECD oil demand), encouraged the dramatic 340 kb/d y-o-y contraction in the preliminary demand numbers for November, to 4.0 mb/d. This is the sharpest decline in ten months as kerosene consumption in particular fell in line with the milder November-December weather. Power sector oil use continued to decline in November, dampening residual fuel oil and 'other product' demand, both due to warm weather and the reopening of some of Japan's nuclear capacity. Naphtha demand has also edged lower recently as a number of crackers have closed, such as some of those owned by Sumitomo Chemicals. The outlook for 2016 is for further declines of around 0.1 mb/d in oil demand.

Rising at a rapid clip since August, Korean oil product demand rose to an all-time high of 2.5 mb/d in November. Equivalent to a y-o-y gain of 185 kb/d (or 7.9%) November's growth was the sharpest since 2012, fuelled by rampant LPG, residual fuel oil, naphtha and gasoil/diesel. Demand for these industrially important fuels have expanded as prices have edged further south, while the economy shows tentative signs of picking up momentum. Looking ahead to 2016, overall Korean oil deliveries will average 2.5 mb/d, a gain of 50 kb/d attributable largely to additional economic activity.

The historical Australian demand series has been revised down, as national source statistics revealed some intra-company flows were previously being wrongly cited as final gasoline demand. Approximately 25 kb/d has been trimmed from 2011-15 data. For 2015 we now have a revised estimate for oil demand of 1.1 mb/d. The latest official data, for November, showed deliveries roughly flat versus last year at 1.1 mb/d, with sharp declines in gasoline and 'other product' demand, offsetting gains in jet/kerosene and gasoil.


Despite reaching an all-time high of 48.8 mb/d in 4Q15, the pace of non-OECD oil product demand growth moderated considerably - rising by 2.3% y-o-y, compared to mid-2015's 3% gain. There were particularly sharp decelerations in non-OECD gasoline and diesel demand, notably in China and Brazil. The economic problems experienced in China and Brazil, and many of the big commodity-dependent economies, such as Russia and Saudi Arabia, will likely ensure the continuation of muted non-OECD oil demand growth in 2016. Demand for the group is forecast to rise to 49.5 mb/d, a gain of 1.2 mb/d (or 2.4%).


At a revised level of 11.1 mb/d in November, the latest apparent demand estimate - calculated as refinery throughputs plus net product imports minus product stock-builds - not only came in below last year's demand but also well under the estimate carried in last month's Report. Amongst the individual product categories that saw the sharpest declines, compared to year earlier levels, were gasoil/diesel and residual fuel oil, offsetting persistent gains in LPG (including ethane) and naphtha. The main factors were the weakening industrial backdrop and a recently large gasoline stock-build.

Chinese gasoil/diesel demand plummeted as industrial usage contracted. This is mainly due to the generally deteriorating macroeconomic backdrop. The latest snapshot of Chinese manufacturing sentiment - the Caixin/Markit Manufacturing PMI - has largely suggested 'contracting' activity all year, with a pronounced slowdown from mid-year onwards. Both residual fuel oil and diesel deliveries have accordingly lagged; diesel gaining additional downside momentum as Chinese coal demand contracts, the movement of which previously provided a large support through additional railroad movements. A factor that is growing in importance is China's evolving economic structure with a growing switch towards domestic consumption away from heavy manufacturing and exports.

The deceleration that took hold towards the end of 2015 is not a surprise as such. What was unexpected is the pace of the adjustment. Chinese demand growth eased back to an estimated 0.2 mb/d y-o-y in 4Q15, versus the 0.8 mb/d addition seen in 3Q15 and 0.7 mb/d for the 1Q15-2Q15 period. All of the main product categories contributed led by gasoil/diesel. For 2016, Chinese oil product demand growth of 0.3 mb/d is projected, as weakness in gasoil/diesel and residual fuel oil are forecast, offset to a degree by persistent gains in gasoline and jet/kerosene - two products that continue to thrive due to the structural changes that are occurring in China - and LPG, as additional petrochemical demand filters through.

Other Non-OECD

The recent demand strength in Hong Kong has lost momentum. Growth decelerated to a seven-month low of +2.4% y-o-y in October pulled down by sharp deteriorations in LPG and residual fuel oil. Residual fuel oil demand fell sharply, although some of this lost bunkering demand may have been displaced by marine diesel (total gasoil/diesel demand in Hong Kong continued to rise strongly). Weak exports also played a role, as the Census and Statistics Department of Hong Kong reported a 3.5% y-o-y reduction in Hong Kong exports in November, with Germany and the US two destinations to see particularly sharp contractions, respectively lower by 7.3% y-o-y and 5.5%. In 2015 oil demand increased by approximately 6%, to 380 kb/d. Momentum is likely to ease to around 3% in 2016 as the underlying economic backdrop remains precarious.

Weak industrial output numbers constrained oil consumption in Chinese Taipei, as September's strong gain now looks to have been an aberration. Having seen sub-2% y-o-y growth in ten of the past fifteen months, October's 1.3% gain is essentially on trend, with momentum restrained by absolute, albeit small, contractions in naphtha, gasoline, gasoil/diesel and 'other products'. The industrial output numbers across the economy as a whole, as reported by the Ministry of Economic Affairs, posted their sixth consecutive y-o-y decline in October, down by 6.2% compared to the year earlier. For 2015, deliveries are expected to average 1.0 mb/d, roughly 2% up on the year earlier, with only a modest acceleration foreseen for 2016 as economic growth is forecast to solidify.

Strong gains in the transport sector saw oil deliveries in Thailand rise to a four-month high of 1.3 mb/d in October, as gains in gasoline, jet fuel and diesel demand offset weaknesses in LPG and naphtha. Low/falling product prices helped offset the poor industrial backdrop. The Office of Industrial Economics cited a 4.2% y-o-y contraction in Thai industrial output in October, despite economic growth approaching 3% y-o-y in 3Q15.

Despite plans to ration road use coupled with a temporary ban on new diesel car registrations in Delhi, the forecast for oil demand in India in 2016 remains strong, rising by approximately 5.7% to 4.2 mb/d. This is supported by robust increases in gasoline, diesel, LPG and 'other product' demand in India. Delhi's near four-week ban on new diesel registrations, which ended on 6 January, dampened sentiment in the car industry rather than Indian oil product demand growth per se. Efforts to limit road use to odd-and-even registration plates on alternate days in the Indian capital, starting January, are likely to have a more pronounced effect, depending on the success of implementation and compliance. Meanwhile, preliminary estimates of November demand showed Indian momentum easing back to +6.4%, compared to the double digit percentage growth seen in September and October. Weak gasoil/diesel and residual fuel oil demand curbed the strong upside momentum otherwise provided by gasoline, naphtha and LPG.

Subsidy cuts dampen already weaker Saudi Arabian demand outlook

From a demand perspective, the key point in the 2016 Saudi Arabian budget was the dramatic curtailment in gasoline subsidies. Hitherto gasoline was priced at 0.45 riyals per litre (or $0.12) for 91 octane and 0.6 riyals ($0.16) for 95 octane. Effective 11 January, prices were respectively hiked to 0.75 ($0.2) and 0.9 riyals ($0.24). Already forecast to see decelerating demand growth in 2016, higher prices will inevitably further dent the Saudi Arabian oil demand outlook.

The government's plans do not end there. Natural gas, ethane, diesel, kerosene, electricity and water prices are all subject to price hikes as part of a five-year plan to curb subsidies. For fuel, ethane prices will rise by 133%, transport diesel +79%, industrial diesel +55% and kerosene +12%. Saudi Arabian oil demand is forecast to rise by just 45 kb/d in 2016, to 3.3 mb/d, sharply lower than the 125 kb/d expansion seen in 2015.

Similar moves by Bahrain, UAE and Oman will further curb Middle Eastern demand. Our forecast for 2016 shows regional oil demand growing by only 0.1 mb/d to 8.3 mb/d. Higher oil product prices potentially curb already precarious economic growth as costs for industry increase. Saudi Arabia Basic Industries Corporation (SABIC), for example, stated that its cost of doing business would rise by more than 5% due to the 2016 Saudi budget. Yanbu National Petrochemical Company and Saudi Arabia Fertilizers Company envisage costs rising by, respectively, 6.5% and 8%. The net long-term impact for Saudi Arabia is likely to be positive as government balances improve and resource allocations become less distorted.

Putting the latest Saudi Arabian prices in perspective, still sub-1.0 riyal per litre ($0.27) Saudi Arabian gasoline remains exceptionally cheap in international terms at roughly one-sixth of the comparable price for the UK, one-quarter that of China or one-half of Iran. When Egypt sharply increased diesel prices in mid-2014 demand barely altered. It fell for two successive months but quickly returned to trend - roughly in line with the adjustment seen in 2012 when Nigeria cut gasoline subsidies.

Ahead of the price reform measures, in October we saw very strong oil demand growth in Saudi Arabia, according to the latest data from the Joint Organisations Data Initiative (JODI). Year-on-year growth was close to a three-year high. Big gains in 'other product' demand (which includes the direct crude oil burn in the power sector), residual fuel oil and gasoline led the way, as persistently low prices and still supportive economic sentiment boosted demand. Business sentiment, as tracked by Markit's Manufacturing PMI, remains strongly 'optimistic' at 56 in October, whereas any reading below 50 signifies 'pessimism'. As subsidies are cut (see Subsidy cuts dampen already weaker Saudi Arabian demand outlook) and government spending is curbed, our oil demand forecast for 2016 has accordingly been downgraded - with the estimate more than halving to 1.4% in 2016.

Sustained by solid road transport demand, oil product deliveries in Iran edged higher in October, rising by just over 65 kb/d versus September to 1.9 mb/d. Despite this increase, the y-o-y statistics remain negative - falling by 45 kb/d - as dramatic declines in residual fuel oil use and LPG, outweigh robust gains in gasoline and gasoil/diesel. Fuel oil demand fell - in both y-o-y and month-on-month terms - as power sector usage eased. Deliveries across 2015 averaged close to 1.8 mb/d, 60 kb/d down on 2014, as economic concerns related to sanctions restrained momentum; renewed growth - both economically and in terms of oil demand - is expected in 2016, as the economy benefits from the removal of sanctions.

In Brazil the weakening of the economy, not helped by political uncertainty, is the background to the declining y-o-y trend that has taken hold since mid-2015. Recent months have even seen the most resilient component of Brazilian oil demand - gasoline - falling into lower y-o-y territory. In November gasoline demand was down 0.6% whereas the previous 10-month trend was +4.0%. Other product categories - such as gasoil and residual fuel oil - have been on longer downtrends and saw sharp contractions in November, according to the latest data from the Agencia Nacional do Petroleo. Industrial oil product demand is falling heavily too as output slumped by 12.4% y-o-y in November, according to the latest data from the Instituto Brasileiro de Geografia e Estatistica. Oil demand averaged 3.2 mb/d in 2015, 1.3% down on 2014 and in 2016 we forecast a further fall of 1%.

Rising sharply in September, according to the latest data submitted to JODI, oil demand in Peru, at 270 kb/d, posted a near 7% y-o-y gain supported by recent price contractions and the strengthening economic backdrop. The latest economic growth numbers, from the Instituto de Estadistica e Informatica, show a 3.0% y-o-y gain in 2Q15. Consumer spending data, from the Central Reserve Bank, show growth of 3.3% in 2Q15 accelerating to 3.4% in 3Q15; this at a time of sharply falling prices. Gasoil/diesel saw the greatest upside in September, up by around 15 kb/d compared to the year earlier to 130 kb/d. For the year as a whole, deliveries should average around 250 kb/d, rising to 260 kb/d in 2016, as economic momentum accelerates. The International Monetary Fund, in the October 2015 edition of its World Economic Outlook, forecast for Peru GDP growth of 3.3% in 2016 following a gain of 2.4% in 2015.

In Russia, oil demand in November fell by 1.0% y-o-y with deliveries averaging 3.6 mb/d. Although still down on the year earlier, the drop is substantially lower than previously foreseen attributable to higher estimates of demand for gasoil/diesel, naphtha and LPG. Having averaged 3.6 mb/d in 2015, down by 1.7% on 2014, the forecast for oil demand in 2016 is 15 kb/d higher than previously foreseen as some sectors of the economy - notably industry - have become more competitive internationally as their exports, priced in dollars, have become relatively cheaper. A further, albeit reduced, oil demand decline of 0.9% is forecast for 2016, as the economic backdrop, although still precarious, is possibly less savage than in 2015.



  • Global oil supplies expanded by 2.6 mb/d in 2015, following hefty gains of 2.4 mb/d in 2014. In contrast with 2014, when non-OPEC producers made up almost the entire gain, in 2015 growth was evenly divided between OPEC and non-OPEC producers. By December, however, growth had eased to 0.6 mb/d, with non-OPEC production pegged below year-earlier levels for the first time since September 2012.
  • OPEC crude oil output eased by 90 kb/d in December to a still-lofty 32.28 mb/d, including newly-rejoined Indonesia. Supplies dipped from Saudi Arabia and Iraq, the group's largest producers, while Iranian output rose by 40 kb/d to 2.91 mb/d - the highest level since June 2012. Overall OPEC production stood 1.06 mb/d above a year ago, which helped push oil prices towards 12-year lows.
  • Iran, relieved of sanctions on 16 January, insists it will boost output by an immediate 500 kb/d. Our assessment suggests that by the end of 1Q16, around 300 kb/d of additional crude oil could be flowing to world markets. Even this must be treated with great care. Depending on the volumes that do emerge, Iran may be OPEC's only source of significant production growth in 2016.
  • The 2016 'call on OPEC crude and stock change', including Indonesia, is revised down by 300 kb/d to 31.7 mb/d following adjustments to our expected rate of decline in non-OPEC supply and slightly weaker demand growth. The 'call' in 2016 rises by 1.6 mb/d year-on-year (y-o-y). In the last six months of 2016, the 'call' is due to rise by 1.18 mb/d from 1H16 to reach 32.32 mb/d - roughly what the group is currently producing.
  • Non-OPEC oil production is proving resilient in the face of plunging oil prices, with 4Q15 output revised up by 280 kb/d since last month's Report. Lower prices and spending cuts have nevertheless put the brakes on non-OPEC supply growth, projected at less than 0.2 mb/d in 4Q15, compared with 2.7 mb/d a year earlier. Output is projected to decline by 0.6 mb/d in 2016, following gains of 1.4 mb/d in 2015 and 2.4 mb/d in 2014.
  • Non-OPEC supplies in December dropped sharply by 650 kb/d to 57.4 mb/d, falling below the year earlier level for the first time since September 2012. A seasonal decline in biofuel production, of nearly 0.4 mb/d was the largest contributor to December's drop. Output from Vietnam, Kazakhstan, Azerbaijan and the US was also seen easing from the previous month and a year earlier, while persistently weak output from Yemen and Mexico also contributed to the year-on-year decline.

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

OPEC crude oil supply

OPEC crude oil output edged down by 90 kb/d in December to a still-robust 32.28 mb/d - including Indonesia, whose membership was re-activated at the group's 4 December meeting. Supplies slipped from OPEC's largest producers, Saudi Arabia and Iraq, with Nigeria and Venezuela also posting marginal declines. Ahead of an imminent easing of international sanctions, Iranian output in December rose by 40 kb/d to reach its highest level since June 2012. Overall OPEC output stood 1.06 mb/d above a year ago, helping to knock down oil prices to below $30/bbl.

OPEC has effectively been pumping at will since late 2014, when the group agreed to maintain production in defence of market share. This year is likely to see output well beyond 32 mb/d from the 13-member group as Iran ramps up production following sanctions relief and fellow low-cost Middle East producers continue to maximise oil sales.

Post-sanctions Iran is in fact likely to emerge as OPEC's only source of significant growth in 2016 as output rises from oil fields released from sanctions. Tehran insists it will boost production by an immediate 500 kb/d. Our assessment suggests that around 300 kb/d of additional crude oil could be flowing to world markets by the end of 1Q16, although this is still highly speculative. Libya also has upside potential, but a sustained production comeback is unlikely given the direct targeting of its vital energy infrastructure by Islamic militants.

Despite rising political tension between Saudi Arabia and Iran following Riyadh's execution in early January of a Shiite cleric, oil operations of a combined 13 mb/d are continuing as normal and the prospect of outright conflict appears remote. Little, if any, impact is seen on near-term OPEC strategy. Relations between Saudi Arabia and Iran, respectively the leading Sunni and Shiite powers of the Middle East, have been tense for some time. Their strained ties did not, however, stand in the way of eventual agreement to OPEC's hands-off strategy at its December meeting in Vienna. During its history, OPEC has seen far more serious spats amongst its members, including the Iran-Iraq war in 1980-1988 and Iraq's invasion of Kuwait in 1990.

A year without production restraint raised OPEC's 2015 average output by 1 mb/d to 32 mb/d, the highest in seven years (see OPEC Crude Production table below). The group's top three producers in 2015 - Saudi Arabia, Iraq and the UAE - churned out record annual production and seem determined to sustain the brisk pace. In global terms, Iraq's y-o-y gain of 650 kb/d ranked it as the second largest source of growth behind the US where output increased by around 700 kb/d. Output from Saudi Arabia rose 450 kb/d y-o-y.

The 2016 'call on OPEC crude and stock change', including Indonesia, is revised down by 300 kb/d to 31.7 mb/d due to changes in our expectations for non-OPEC supply and slightly weaker demand growth. The 'call' in 2016 rises 1.6 mb/d y-o-y. In the last six months of 2016, the 'call' is due to rise by 1.18 mb/d from 1H16 to reach 32.32 mb/d - roughly what OPEC is currently producing. The group's 'effective' spare capacity stood at 2.38 mb/d in December, with Saudi Arabia accounting for nearly 90% of the surplus.

Iran is back

The suspension on 16 January of nuclear sanctions on Iran opens the world oil market to fresh supplies - the volume and pace of which will be crucial to 1Q16 balances. Tehran insists it will boost output by an immediate 500 kb/d now that sanctions are relieved and by a further 500 kb/d in the following six months to regain the ground it lost after sanctions were tightened in mid-2012. Our assessment is that considerable progress has been made in readying its oil network and identifying prospective buyers. On this basis, around 300 kb/d of additional crude could be flowing by the end of 1Q16 although this volume must remain, in these early days, necessarily speculative.

Production already edged up 40 kb/d during December to 2.91 mb/d, the highest since June 2012, to help fill storage tanks at the Kharg Island loading terminal ahead of the easing of sanctions. We expect flows from Iranian oil fields, now free of any restrictions, to rise towards a pre-sanctions capacity of 3.6 mb/d within six months, with potential y-o-y growth of around 400 kb/d. Tehran has done its utmost to ensure the country's oil sector is prepared for higher output and, if anything, some of the country's core oil fields - such as Ahwaz, Marun and Gachsaran - may have been revived under sanctions. Shutting down large volumes of oil may have allowed pressure to rise - leaving the fields capable of a swift production boost.

As for Iran's post-sanctions marketing effort - it will no doubt be challenging given the world's current oversupply. To speed the process, the National Iranian Oil Co (NIOC) will continue to offer competitive pricing and may be open to crude-for-product swaps as well as deferred payment. NIOC may also show flexibility on quality and timing. Iran's first 500 kb/d burst of additional crude oil sales - if this is the volume that is actually exported - could break down as follows: Iranian Heavy 60%, Iranian Light 30% and new, heavy West of Karun crude - due to make its debut in 2Q16 - the remainder.

As soon as NIOC's top brass gives the go-ahead, Iran is expected to aim around 200 kb/d of additional crude towards existing customers in Asia such as India, South Korea, China and Japan - all regular buyers while sanctions were in place. Tehran will also strive to recapture market share in Europe, which imported around 1 mb/d until sanctions were tightened. To that end, NIOC is believed to be targeting around 250 kb/d towards European refineries - especially in the Mediterranean - that were especially fond of Iran's sour crude. A drawback could be that it will take time to secure access to banking channels and get logistics in place. Iranian barrels are likely to back out similar quality sour crude from Saudi Arabia, Iraq and Russia - so producers are likely to become ever more competitive on the pricing front. OPEC's top two producers Saudi Arabia and Iraq recently locked in additional supply to Europe before sanctions on Iran were eased.

During December, imports of Iranian crude stabilized at around 1.0 mb/d. India, Japan and China increased purchases, while imports from South Korea and Syria declined, according to preliminary data. Purchases of crude oil in 2015 were 1.09 mb/d versus 1.1 mb/d in 2014 - down from around 2.2 mb/d at the start of 2012 before sanctions were tightened. Condensate imports doubled to 180 kb/d in December. For 2015, imports of the ultra-light oil from Iran's South Pars gas project were 130 kb/d versus 190 kb/d in 2014.

Condensates may, in fact, make Iran's post-sanctions marketing more difficult. NIOC has to clear an overhang of some 34 million barrels of condensates stored at sea on 17 of its ships - and the specialised nature of this ultra-light oil can make it a tough sell. Tehran will want to off-load the floating storage as quickly as possible to free up its tanker fleet to make crude oil deliveries. Until substantial volumes of condensate can be sold, NIOC will concentrate on selling crude oil from Kharg Island on vessels chartered by buyers, industry sources said. Eventually NIOC will seek to reactivate its contract with the SUMED pipeline that carries crude oil from the Red Sea to the Mediterranean.

Looking further ahead, Iran will also strive to reclaim its spot as OPEC's second biggest producer after Saudi Arabia - a post now occupied by neighbouring Iraq. But with Iraq now cranking out more than 4 mb/d, Tehran will have its work cut out. Once it regains full access to capital markets, Iran should be able to bring in more advanced technology and gradually raise production capacity beyond 3.6 mb/d. Capacity limitations now are most probably surface-related - production units, flow lines, trunk pipelines and gas compression facilities. Service companies and equipment suppliers will be needed to help sustain capacity at about 3.6 mb/d and could potentially help boost it towards 3.8 mb/d. With the help of foreign cash and cutting-edge technology, Tehran may be able to push capacity back up to the 4 mb/d mark towards the end of the decade. The country's oil fields last pumped near that level in 2008.

To lure the international oil companies (IOCs), Tehran has hammered out a much-improved version of its former buy-back investment contract that it believes is better than Iraq's. It unveiled the new upstream contract and 50 projects at a conference in Tehran in late November and plans a similar event in London during the last week of February. Major oil companies from Europe and Asia have flocked to Iran to discuss possible post-sanctions supply deals and upstream involvement. The threat of snap-back sanctions should Tehran fail to honour its commitments under the terms of the Joint Comprehensive Plan of Action (JCPOA) may dampen the appetites of foreign investors and much will depend on contractual terms that Iran's oil ministry is fine tuning. US companies, however, might find themselves out of the race while Washington's non-nuclear-related sanctions remain in place.

Production in Saudi Arabia dipped by 50 kb/d in December to 10.14 mb/d due to slightly lower shipments to world oil markets. Preliminary tanker tracking data showed a decline in loadings to China and India following relatively hefty purchases in November. Ten consecutive months with production above 10 mb/d pushed Riyadh's average annual output in 2015 to an all-time high of 10.17 mb/d, up 450 kb/d y-o-y. There appears to be slim chance of the Kingdom's production falling below 10 mb/d in the coming months given its determination to defend market share and satisfy internal demand.

Saudi crude oil sales continue to flow around the 7 mb/d mark, with shipments of nearly 7.4 mb/d from January through October 2015 up roughly 300 kb/d on the same period in 2014, according to the latest official 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 10 months of 2015, a rise of around 400 kb/d on the same period in 2014.

Riyadh is meanwhile giving consideration to a share offering of state-owned Saudi Aramco, the world's largest oil company, or its subsidiaries. ''Listing of downstream assets has been with us for some time, but of course everything in the Kingdom has taken on great urgency," Saudi Aramco Chairman Khalid al-Falih told the Wall Street Journal in an interview on 11 January. He said there was no specific timing for any public offering - a landmark move for Riyadh, which has kept its oil sector off limits to foreign investment since nationalisation in the 1970s. Saudi Aramco CEO Amin Nasser said Riyadh would maintain a controlling stake in the state oil giant if it proceeds with the listing. Deputy Crown Prince Mohammed bin Salman is heading the country's newly formed Supreme Economic Council and appears to be the main driver of the Kingdom's reforms.

Production in neighbouring Gulf countries was broadly steady in December. Kuwaiti flows inched up to 2.81 mb/d. Production in the UAE held at 2.89 mb/d, within sight of record highs. Qatari supply was unchanged at 680 kb/d.

Despite the twin challenge of low oil prices and a costly battle against Islamist militants, Iraq made strong y-o-y gains of 650 kb/d in 2015 that pushed average output close to 4 mb/d, an annual record. The production performance from Iraq, including the Kurdistan Regional Government (KRG), was even more impressive during 2H15, when flows ran above 4.2 mb/d. Output in December edged down 30 kb/d month-on-month (m-o-m) to 4.26 mb/d.

Iraq supplied world crude markets with an average 3.3 mb/d in 2015, up roughly 30% on the previous year. But a sharp decline in oil prices is taking a toll on the country's budget. The federal government's revenue dropped by around 40% y-o-y to just under $50 billion in 2015. Exports during December - including from the KRG - were around 3.8 mb/d, down from November's bumper sales of nearly 4 mb/d.

Shipments of flagship Basra crude from Iraq's southern outlets have risen steadily after Baghdad launched a new export system to separate heavy and light oil and built more storage tanks at the Fao terminal. Basra exports in December slipped to 3.2 mb/d from a record 3.37 mb/d in November. With Iraqi oil fetching less than $30/bbl, the oil sales earned Baghdad roughly $3 billion.

Basra export volumes for January are expected to be steady versus December, but February's provisional loading schedule issued by Iraq's State Oil Marketing Organisation (SOMO) shows a record-smashing 3.6 mb/d. Preliminary allocations, however, are subject to revision and often fall short of initial targets.

Shipments of northern crude via Turkey during 2015 ran at more than 500 kb/d - up from only around 65 kb/d in 2014. Exports in December dipped to around 580 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 SOMO in a feud over budget payments and export rights.

The federal government has meanwhile asked international oil companies developing its fields to cut 2015-16 budgets and hold production steady. For its part, the KRG is struggling to make timely payments to foreign contractors tapping its fields. Thus Iraqi output, including from the KRG, is likely to stay broadly steady in 2016 versus a 4Q15 rate of around 4.25 mb/d.

Militant attacks in Libya kept output below 400 kb/d during December. Targeting of the oil sector escalated in early January, with strikes on the crucial terminals at Es Sider and Ras Lanuf. Militants clashed with the Petroleum Facilities Guard, setting fire to seven oil storage tanks at the export outlets. The Tripoli-based National Oil Corp (NOC) emptied tanks at Ras Lanuf as a precaution after the attack. Days later, an explosion hit a major oil pipeline south of Ras Lanuf. The pipeline has been shut for more than two years. Es Sider and Ras Lanuf have been closed since December 2014. A lengthy battle between the officially recognised government in the east and the so-called Libya Dawn administration in Tripoli has shut operations at the country's strategic oil terminals and fields that pumped 1.6 mb/d prior to the downfall of Muammar Gaddafi in 2011.

In West Africa, Nigerian output eased by 40 kb/d to 1.76 mb/d due to export disruptions in the Bonny and Brass River streams. Angolan output was a shade higher than November at 1.76 mb/d.

Crude oil supply in Indonesia held steady at 670 kb/d, but output could rise in January following the reported start-up of a production facility at the Exxon-operated Banyu Urip field. OPEC's only Asian member re-joined the group in December. It suspended membership in 2008 when it became a net oil importer.

Non-OPEC overview

Non-OPEC oil production is proving resilient in the face of plunging oil prices, with the latest data suggesting November 2015 output levels nearly 0.5 mb/d higher than previously expected. Stubbornly robust US production, revised up by 90 kb/d for the first 9 months of the year, and on track to post annual gains of 0.9 mb/d for 2015 as a whole, comes against a backdrop of a decline of nearly 70% in drilling activity in just over a year. A reduction in the uncompleted well count, or frack-log, as seen in a higher number of completed wells, has supported output, as has continued increases in productivity at most shale plays. New projects also came on stream in the Gulf of Mexico.

North Sea production equally continues to surprise, with Norwegian oil supplies breaching the 2 mb/d mark for the first time in nearly four years in October. UK production has also held up, contributing roughly half the mature region's 140 kb/d annual increase last year. Output could rise further still in the coming months supported by the recent or imminent start-up of the Goliat, Alma-Galia, Solan and Stella projects. Field declines and a return to more normal maintenance and outage levels in 2016, after exceptionally few shutdowns in 2015, are nevertheless expected to limit the upside this year, resulting in a net decline of 120 kb/d.

Yet another month of record-high Russian crude and condensate production in December came on the back of the start-up of the Yarudeiskoye field, which ramped up at a rapid pace. While the field will probably account for the majority of output gains in 2016, further increases are limited as the field already reached peak production levels in early January. Indeed, output from mature fields operated by the country's largest producers, Rosneft and Lukoil, are clearly on a declining trend.

Industrial action in Brazil during November had a smaller impact on output levels than expected. Output continues to ramp up from new production units at pre-salt fields, with the massive Lula field reaching new highs. Petrobras continues to face headwinds, however, and the beleaguered state-producer cut investment and output targets yet again in early January. The impact of such cuts will likely not be immediate, and several new floating, production, offloading and storage vessels are still ramping up production while additional facilities are on track to be commissioned this year. While a slowdown in drilling at mature fields could increase the rate of decline at already producing fields, the new production units will continue to prop up supply this year. Despite its numerous challenges, Brazil remains the largest contributor to non-OPEC supply growth this year, followed by Canada.

Non-OPEC oil supplies are nevertheless seen sharply lower in December. Overall supplies are estimated to have slipped by more than 0.6 mb/d from the month prior, to 57.4 mb/d. A seasonal decline in biofuel production, largely due to the Brazilian sugar cane harvest, of nearly 0.4 mb/d was the largest contributor to December's drop. Production in Vietnam, Kazakhstan, Azerbaijan and the US was also seen easing from both November's level and compared with a year earlier. Persistently low production in Mexico and Yemen were other contributors to the year-on-year decline.

As such, total non-OPEC liquids output slipped below the year earlier level for the first time since September 2012. A production surge in December 2014 inflates the annual decline rate, but the drop is nevertheless significant should these estimates be confirmed by firm data. Already in November, growth in non-OPEC supply had slipped to 640 kb/d, from as much as 2.9 mb/d at the end of 2014, and 2.4 mb/d for 2014 as a whole. For 2015, supplies look likely to post an increase of 1.4 mb/d for the year, before contracting by nearly 0.6 mb/d in 2016. A prolonged period of oil at sub-$30/bbl puts additional volumes at risk of shut in as realised prices fall close to operating costs for some producers.


North America

US - October actual, Alaska December actual: US oil production declined by 60 kb/d in October, to 13 mb/d, slightly less than previously expected. In contrast to previous months, the decline stemmed largely from offshore projects in the Gulf of Mexico, slipping 80 kb/d from previously robust rates. Onshore Texas crude output declined by 26 kb/d, California was down by 15 kb/d while Alaskan supplies inched up 25 kb/d, partly recovering from low production since early summer. NGL production meanwhile bounced up by 85 kb/d, to 3.43 mb/d - a new record high.

In its latest monthly production data release, the US EIA revised up its production estimates for January through September 2015 by an average of 90 kb/d. The bulk of the adjustments were made to output from Oklahoma, now averaging 440 kb/d for the first nine months of the year, compared with 340 kb/d reported earlier. The revision to Oklahoma production levels from January 2015 follows the EIA's change of methodology to be based on data from its EIA-914 survey. The previous methodology (using lagged state data) "did not adequately capture significant oil production increases during 2015" according to the EIA. The 914 survey is used for production estimates for Arkansas, California, Colorado, Kansas, Louisiana, Montana, New Mexico, North Dakota, Ohio, Oklahoma, Pennsylvania, Texas, Utah, West Virginia, Wyoming, and the Federal Gulf of Mexico, while all other production estimates are based on the previous methodology.

The change in methodology, starting with January 2015, makes evaluating year-on-year changes and the full impact of the drop in prices difficult. For Oklahoma in particular, the significant increase in production from December 2014 to January 2015 appears overstated, surging 23% m-o-m. As such, we have also adjusted the Oklahoma production levels up by about 50 kb/d for 2014, in an attempt to better capture recent trends, while we await EIA's revision to 2014 production estimates later this year.

The latest price slump saw US oil companies once again reduce the number of rigs active. By mid-January, the total number of rigs stood at 515, 26 less than a month earlier and 68% below the peak in October 2014. Over the month, operators pulled nine rigs out of the Permian basin, 11 out of Williston, and 10 out of other plays, while three were added in Eagle Ford. The drop in horizontal oilrigs over the same period was a lesser 62%, suggesting the least productive vertical rigs were removed first.

Data from Rystad Energy show the number of completed wells have by far outpaced the number of wells spudded (drilled) since 4Q14. Indeed, the number of well completions per month continued to increase several months after the rig count started to drop off, peaking at more than 1,600 wells in December 2014. The number of completions are still outpacing the number of new wells drilled, and as a result, the number of uncompleted wells, or the frack-log, has been cut down from its peak of around 4,600 wells hit at the end of 2014 to around 3,700 wells currently.

EIA's Drilling Productivity Report (DPR) meanwhile estimates that the decline in oil production from the seven most prolific US shale plays has accelerated, dropping 115 kb/d in January from a month earlier, to 4.86 mb/d.  January's estimate of total oil production was 350 kb/d less than the previous year. Production from new wells had dropped to less than 240 kb/d, falling short of legacy declines of more than 350 kb/d. The biggest declines from a year earlier in both absolute and percentage terms are stemming from the Eagle Ford basin. Output dropped by 460 kb/d to 1,200 kb/d, or 28% from a year earlier according the EIA DPR. Eagle Ford saw the steepest increase in production and productivity over the 2010-2014 period but has also seen the sharpest decline since the start of 2015. Bakken output was 10% lower, at 1,097 kb/d. The only two regions that saw higher output were Permian, up 19% to 2,034 kb/d and Utica, which gained 45% to 80 kb/d.

Canada - Newfoundland November actual, others October actual: Canadian oil supplies saw only a modest improvement in October, recovering by 150 kb/d from September's low, to 4.3 mb/d.  Production from Alberta's upgraders inched up to 870 kb/d, from 810 kb/d a month earlier and substantially below the 1.16 mb/d reported in August before a fire curbed output at Syncrude's upgrader near Fort McMurray. Other Albertan oil supplies rose 135 kb/d, to just over 2 mb/d, while offshore output slipped on heavy maintenance at the Hibernia field. Output at the offshore field averaged only 14 kb/d over the month, compared with normal levels of around 100 kb/d.

Output is projected to have risen further in November, as not only did the Hibernia field resume normal operations, synthetic crude output also rose. According to a company report, output at the Syncrude upgrader recovered to around 320 kb/d in November, (from 214 kb/d in October and only 63 kb/d in September) before slipping again in December, when maintenance of the plant's coker 8-2 cut production by 85 kb/d.

Mexico - November actual, December preliminary: Following a precipitous production decline in most of 2014 and early 2015, Pemex, seems to have - at least for now - been able to stabilise oil production around 2.6 mb/d.  Total oil supplies were only marginally lower than a month earlier in December, at 2.6 mb/d.  Compared with the previous year, output stood 115 kb/d lower, with the bulk of the decline stemming from the offshore Cantarell development. Cantarell, which peaked at 2.1 mb/d in 2003, saw its production slip to 246 kb/d in November, the latest month for which official monthly data is available.

North Sea

North Sea producers maintained high output levels through end-2015, with the most recent data showing Norwegian output breaching the 2 mb/d mark in October for the first time since May 2012. For the year as a whole, 2015 marked a second consecutive year of rising production in Norway, reversing a decade of falling output levels. Output in the UK continental shelf has also increased: a combination of new field start-ups and lower outage levels has lifted supplies in 2015 by 85 kb/d compared to 2014.

The supply of North Sea crudes that underpin the Brent benchmark are set to fall modestly in February according to Reuters calculations based on loading schedules. Supplies of the four streams, Brent, Forties, Oseberg and Ekofisk (BFOE), were scheduled to average 1.01 mb/d in February, compared with an upwardly revised loading schedule of 1.03 mb/d reported for January. The monthly drop stemmed mostly from Forties cargoes, which were set to slip by nearly 70 kb/d from January's high.

Norway - November actual, December provisional: The latest official production statistics from the Norwegian Petroleum Directorate through November exceeded preliminary production estimates by more than 70 kb/d. Surging to 2.02 mb/d in October, total output stood at its highest since May 2012, and up 75 kb/d on a year earlier. Output eased marginally in November, before breaching the 2.0 mb/d mark again in December, according to preliminary estimates.

October's steep 160 kb/d surge followed increased output from a number of installations, including Troll and Balder, after seasonal maintenance cuts. The ramping up of production at new facilities such as Knarr (producing since March and reaching 42 kb/d in October) and Gudrun (producing since April 2014, and reaching a new high of 69 kb/d) contributed.

In late December, Eni admitted further delays to the start-up of its Goliat oil and gas field in the Barents Sea. Eni said commissioning work at the $6 billion project was at its final stage, with 15 wells ready for production and connected to the FPSO. Eni is still waiting for consent from the Norwegian Petroleum Safety Authority, which has reportedly refused to sign off on the production start due to a range of technical concerns. Once fully on-stream, the project, which will be the first producing field in the Arctic waters of the Barents Sea, will add 80 kb/d.

UK - October actual: Total UK oil production in October came in at 960 kb/d, in line with preliminary estimates. September supply figures were also confirmed by field-level output data, at around 900 kb/d. Both months recorded annual gains of more than 100 kb/d, with increases stemming mostly from the Forties system, which supplied 475 kb/d in October, up 190 kb/d on the year prior. Forties production has been boosted by several new fields added to the system. Notably, Nexen's Golden Eagle and BP's Kinnoul fields, started up in and November 2014 and January 2015, respectively, produced a combined 90 kb/d in September. Despite an annual drop in output at the system's largest field, Buzzard, from 185 kb/d to 155 kb/d, output was up 25 kb/d from outage-affected levels the previous year.

In October, Enquest started up its Alma field followed by the commissioning of Galia in November. The two fields should add 20 kb/d of output when fully operational. The expected start-up of the Greater Stella Area development off the UK meanwhile has slipped further back due to delivery delays for the floating production unit destined for the field. Ithaca now estimates first production from the Stella field in the third quarter of the year. Premier Oil has postponed first oil from its Solan field project off the UK until this January due to weather-related delays. The British operator had aimed to start production from the field West of Shetland by end-2015.

Final data should confirm that the UK is on track to post its first annual output gain since 1999 in 2015, with production increasing by more than 70 kb/d to 940 kb/d. Total oil production is forecast to ease slightly in 2016 to 885 kb/d as new field start-ups are offset by declines at mature fields and the return of a more normal seasonal maintenance programme.


Latin America

Brazil - November actual: Brazilian crude and condensate output fell by a lesser-than-expected 25 kb/d in November, despite a national workers protest affecting production at a number of facilities. Output averaged 2.38 mb/d, up only 20 kb/d from a year earlier. A 50 kb/d monthly increase in in output at the massive Lula provided an offset to declines at Saphinoá, Marlim and a number of smaller fields.

Production at the Lula pre-salt field reached its highest level yet, of 380 kb/d, more than 200 kb/d above a year earlier as output commenced from the Iracema Norte area of the field, thanks to the start-up of the Cidade de Itaguai floating production, storage and offloading vessel. According to Petrobras, the Cidade de Itaguai, which has a production capacity of 150 kb/d, produced 62 kb/d in October from just two wells. Since August 2015, Lula overtook Roncador as Brazil's largest field in terms of output.

In early January, Petrobras trimmed capital spending projections by 25 percent for the 2015-2019 period and warned that more declines in oil prices and the nation's currency could lead to further revisions. The company said that missing operational goals led management to lower planned investments to $98.4 billion. Petrobras has cut spending twice since June, from an original estimate of $130.3 billion for the period 2015 through 2019.


Viet Nam - December preliminary: According to preliminary government data, Viet Nam produced an estimated 288 kb/d crude and condensates in December, down 15% from a year earlier. Actual output last month was revised up to 380 kb/d from an initial estimate of 340 kb/d, or an 8% increase from November 2014.

Malaysia - October actual: Malaysian total oil production rebounded in September to above 700 kb/d after maintenance at the Gumusut-Kakap facility to install gas handling and injection systems was carried out over the summer months. After dipping slightly again in October, output should inch up further through year-end, and stay around these levels during 2016. For 2015 as a whole, Malaysia's crude production is estimated to average 650 kb/d, an increase of 50 kb/d from a year earlier. Including NGLs output averaged 705 kb/d. New field start-ups, most notably of the Kimanis grade produced from the Gumusut-Kakap field which started in September 2014, supported the gains. Output at the field is expected to peak at 90 kb/d in 2016, from around 50 kb/d currently.

Former Soviet Union

Russia - November actual, December provisional: Russian crude and condensate production inched up yet again in December, to hit another record high of 10.83 mb/d. The start-up of Novatek's first crude field, Yarudeiskoye, supported the rise. The Yarudeiskoye field, which was launched in early December, had reportedly reached peak production capacity of approximately 70 kb/d already by early January, much faster than expected. Yarego, the joint venture developing the field, said 24 production wells are already on line and producing around 4 kb/d each.

Compared with a year ago crude and condensate output recorded gains of 160 kb/d in December, most of which stemmed from SeverEnergia and Novatek, both up by more than 100 kb/d y-o-y. Russia's largest producer, Rosneft, reported a marginal decline of just 30 kb/d compared with a year earlier, while Lukoil output was down 50 kb/d. For 2015 as a whole, Russian oil production posted gains of 150 kb/d, to 11.1 mb/d on average, including gas liquids from processing plants. While total output is projected to ease from recent highs through 2016, for the year as a whole production is pegged near 2015's level. Growth from Yarudeiskoye, Severenergia and some further production gains to be expected from Bashneft and Gazpromneft offsetting declines at mature fields.

Azerbaijan - November actual: In line with previous estimates, Azeri oil output dropped by another 30 kb/d in November, following October's 20 kb/d drop, to 810 kb/d. The decline stemmed from the Azeri, Chirag and Guneshli complex, which accounts for roughly 75% of the country's crude production. Supplies are estimated to have dropped further in December when a deadly fire struck a Socar-owned platform in the Caspian Sea. The platform that was working on the Guneshli field, reportedly accounting for 60% of Socar's oil output, or around 75 kb/d, was still burning in early January.

Kazakhstan - November actual: Kazakhstan's total oil production, including natural gas liquids, gained 165 kb/d in November, to 1.73 mb/d The bulk of the increase stemmed from the country's largest producer, Tengizchevroil, which saw output rebound by 145 kb/d to 595 kb/d, after maintenance had curbed output a month earlier. The country's second largest producer, Karachaganak Petroleum Operating Co., recorded a gain of 20 kb/d, to 262 kb/d. Output was nevertheless 4% below that of a year earlier.

FSU net oil exports:

OECD stocks


  • A notional 1 billion barrels of oil was added to global inventories over 2014 - 2015 and our latest supply and demand balances suggest builds will persist with up to 285 mb expected to be added to stocks over the course of 2016. Despite estimations of current space storage capacity and the outlook for significant capacity expansions over 2016, this stock build will likely put midstream infrastructure under pressure and could see floating storage become profitable.  
  • OECD commercial inventories stood at 2 982 mb at end-November, almost level with October's upwardly revised total. OECD stocks have built now for nine consecutive months - adding 220 mb over the period.
  • Refined products holdings added 7.3 mb over November as refiners in all OECD regions continued to ramp-up throughputs while demand growth eased. Ahead of the arrival of colder weather in the northern hemisphere, middle distillates built by an impressive 10.2 mb to stand 47 mb and 59 mb above average and last year, respectively. At end-month, refined products covered 31.5 days of forward demand, 0.1 day less than at end-October following a forecast uptick in demand.
  • Preliminary data for December suggest that OECD stocks rose counter-seasonally by 7.7 mb driven by a steep build in Europe. This suggests that OECD industry inventories will have added a record 252 mb at a rate of 0.7 mb/d over 2015.

Global overview

Stocks have stubbornly refused to follow seasonal trends and draw over recent months. In 4Q15 global stocks soared by a notional 1.8 mb/d - a record for the fourth quarter - a period normally characterised by stocks draws (only four builds have been posted in the fourth quarter over the past thirty years), and global supply and demand balances suggest that stocks will continue to build throughout this year.

Following upward revisions to non-OPEC supply and downward revisions to demand in 2016, global supply and demand balances now suggest that stocks will build by a notional 385 mb this year. Despite roughly 100 mb of available capacity in the US and the projected 230 mb of new storage capacity due to be commissioned by the end of the year (see Global oil storage capacity to surge in 2016 and beyond), the scale of the build would likely put midstream infrastructure under pressure. Due to the opacity of tank capacity information, especially in producer countries, it is difficult to assess whether there is currently additional spare storage capacity outside of the US. Nonetheless, and with all things being equal, such a build would probably put prompt prices under pressure, thus deepening the contango price structure (where oil for prompt delivery is sold at a discount to oil for delivery later) which in turn would see volumes of oil stored at sea increase. Moreover, since midstream infrastructure has so far coped with the notional 1 billion barrels of oil added to global inventories over 2014 - 2015, floating storage volumes have largely resulted from logistical and marketing issues (see floating storage slowly sailing away).

Floating storage slowly sailing away

Over the past twelve months, volumes of oil held in floating storage have increased notably and in mid-year approached the highs seen in 2009-10. However, while the previous peak in floating storage was driven largely by market participants turning to floating storage as a speculative play - the buying of a physical cargo and storing it on an oil tanker before selling it at a later date for a profit - this time logistical bottlenecks and marketing issues have forced market participants to turn to tankers for storage.

In 2009-10 we saw a 'super-contango' in global oil markets. In the ICE Brent market, the discounts of prompt barrels versus those for delivery three months later and twelve month later reached $5/bbl and $16/ bbl, respectively. At its peak, short-term floating storage amounted to 113 mb held on 132 vessels.

Market conditions now are very different as, although crude and product markets are once again in contango, the time spreads of markets are currently insufficient to cover storage costs that include tanker hire, insurance, bunker fuel and port fees. Although information is scarce and costs vary across charters and locations, we understand that floating storage costs in the region of $1.30/bbl to $1.50/bbl per month. To cover these costs it is necessary for a contango of over $4/bbl over three months and $16/bbl over twelve months.

During most of 2015, forward time spreads in the ICE Brent market remained about $0.40/bbl - $0.60/ bbl per month. Nonetheless, early-February saw the contango in the first twelve months of the ICE Brent contract widen to over $10/bbl. This whetted the appetite of many market participants and saw a number of large vessels booked on time charters with storage options. However, as the contango once again narrowed, speculative storage did not take off. Rather, logistical bottlenecks and marketing difficulties in key regions have driven volumes held at sea.

These include port delays in China that have seen vessels remain anchored at key terminals. In Northwest Europe vessels have had trouble offloading as land-based storage levels in the ARA region have remained at close to full capacity amid difficulties moving product into central Europe. Meanwhile, approximately 36 mb of Iranian oil remains held on NITC tankers as, amid ongoing sanctions, Tehran struggles to offload its less profitable mercaptan-rich condensate that few refineries outside of Asia can process. Now sanctions have been lifted these volumes are expected to be drawn down relatively quickly. Nigeria has also been hit by marketing difficulties that have periodically seen cargoes being loaded onto tankers and then anchored while a buyer is sought. In all, EA Gibson shipbrokers estimate that in early January there was 68 mb of short-term floating storage globally with 74% of this held in the Middle East Gulf with cargoes also being held in Asia Pacific (16 mb) and North West Europe (2 mb). In addition, approximately 60 mb of oil is held in semi-permanent floating storage in Singapore, the Middle East Gulf, the Caspian Sea and the Arctic Ocean where ships are used for the building and breaking of bulk.

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

OECD commercial inventories stood at 2 982 mb at end-November, almost level with October's upwardly revised total. Stocks have remained relatively constant since September but have built for nine consecutive months - a period during which they have added 220 mb. The slight 30 kb rise in total inventories was in sharp contrast to the 11.7 mb five-year average draw for the month. Accordingly, stocks' surplus to average levels widened to 282 mb from 270 mb one month earlier. Levels were buttressed by rising refined products holdings that added 7.3 mb over the month as refiners continued to ramp-up throughputs amid slowing demand growth. Middle distillates rose by an impressive 10.2 mb, far steeper than the 2.5 mb five-year average build. As winter in the northern hemisphere gets under way, middle distillates inventories stand 47 mb and 59 mb above average and last year, respectively. Middle distillates inventories in both the Americas and Europe are above average levels while those in Asia Oceania stand at a slight (1.2 mb) deficit.

The only product category to post a draw during November was 'other products' which fell seasonally as inventories in the US drew by 10.1 mb after space heating demand for propane increased upon the arrival of colder weather. OECD motor gasoline inventories rose by 6.0 mb, meanwhile, while fuel oil increased counter-seasonally by 3.6 mb with all OECD regions posting counter-seasonal builds. All told, refined products covered 31.5 days of forward demand at end-month, 0.1 day less than at end-October following revisions to demand data.

As refinery activity increased, OECD crude oil holdings drew by 7.7 mb, in line with seasonal trends. However, this masked regional disparities; stocks in OECD Americas rose by 2.4 mb to defy seasonal trends as regional crude production remained resilient and as a narrower WTI - Brent spread attracted cargoes from West Africa. On the other hand, stocks in Europe drew seasonally (-3.0 mb) while in Asia Oceania they dropped by a steep 7.0 mb, largely after Korean throughputs outpaced imports.

Upon the receipt of more complete data, OECD total oil holdings were revised 10.7 mb higher in October as a 13.4 mb upward adjustment to crude oil was partly offset by a combined 2.7 mb downward revision to refined products and 'other oils'. Crude stocks in all OECD regions were revised higher with those in the Americas, Europe and Asia Oceania increasing by 5.6 mb, 3.4 mb and 4.4 mb, respectively. On the products side, downward adjustments were made to Europe (-6.2 mb) and Asia Oceania (-1.8 mb) while the Americas were revised upwards by 5.9 mb which saw the region's total oil holdings adjusted up by a significant 10.3 mb. When considering an additional 1.7 mb upward revision to September data, the net effect of the October adjustment is that the 8.2 mb stock draw presented in last month's Report is now seen as a slight 0.7 mb stock build.

Preliminary data for December suggest that commercial holdings remained stubbornly high and built counter-seasonally by 7.7 mb. The increase was centred in Europe where stocks added 9.5 mb, in sharp contrast to the 4.1 mb average draw for the month after being pressured upwards by a 9.9 mb surge in crude holdings. Elsewhere, US inventories remained stable (+0.1 mb) as counter-seasonal builds in crude, NGLs and other feedstocks more than offset a decrease in refined products. On the other hand, stocks in Asia Oceania drew by 1.9 mb, far shallower than the 16.7 mb average draw for the month. If these data are confirmed by final data, OECD industry inventories will have added a record 252 mb at a rate of 0.7 mb/d over 2015.

Global oil storage capacity to surge in 2016 and beyond

Despite the current oversupply in global oil markets and the fall in oil prices over the past year, the contango structure of crude and products markets has remained relatively flat. This is in sharp contrast to the development of the so-called super-contango over 2009-10 when, as storage capacity in key markets came under pressure, the contango over the first twelve months of the ICE Brent contract widened to over $16 /bbl that saw oil moved onto tankers (see floating storage slowly sailing away).

One reason for this difference is that so far global storage capacity has remained ample to absorb the extra supply. Over the past decade, the oil market has reacted to a number of ongoing and fundamental trends that have necessitated the building out of storage capacity. These include; the shift in oil demand growth towards the non-OECD, the increasing globalisation of oil trade, the movement of refining closer to the wellhead and the surge in North American onshore production. The US EIA is the only body to routinely collect storage capacity data and their most recent survey indicated that tank space grew by 160 mb (6%) between 2010 and 2015. Outside of the US, capacity information is scarce, although Chinese SPR capacity has likely added over 200 mb between 2006 and 2016 while a significant amount of commercial capacity there was also commissioned. Other notable capacity additions came online in the last few years in the Middle East, Singapore, India, Canada and the EU.

According to project lists, the expansion of storage capacity is expected to continue in 2016 and beyond. This year, over 230 mb of new capacity is expected to be completed. New Chinese capacity is likely to account for more than 50% of this with up to 110 mb of SPR capacity slated to be commissioned before 2017 with sites at Jinzhou and Huizhou among the first to be completed. A number of commercial facilities are

also expected to be commissioned including Yangpu, Dongying, Yunnan and Shandong. Elsewhere in Asia, India is expected to belatedly fill the latest phase of its SPR, which should amount to nearly 30 mb. Smaller projects are slated to be finished in Singapore (4.5 mb) and the Maldives (0.3 mb).

In the next few years, the Middle East is expected to see a rapid surge in storage capacity as local refining capacity increases and the region's strategic importance in global trade rises. The UAE and Oman will exploit their positions outside of the Straits of Hormuz, to become important global players in the storage business. This year will see the UAE add nearly 10 mb of tankage at Fujairah and in the Hamiyah free trade zone. Going forward, 2017 is expected to see oil stored at Oman's ambitious Ras Markaz project which eventually could hold 200 mb.

Elsewhere, as African oil demand increases, projects in South Africa (0.7 mb) and Mozambique (1 mb) are expected to come online. In Latin America, as Brazil increases domestic oil production, 1 mb of capacity should be added while the Dominican Republic should also construct 1 mb. Also of note is the recent $370 million sale of the shuttered Hovensa refinery in the Virgin Islands to a group planning to run the site as a storage terminal.  This site currently has 30 mb of capacity with more expected to be added. Depending on the state of the tanks, oil could be stored on the site in early 2016.

It is not only developing countries where oil storage terminals are being expanded. As North American infrastructure adapts to surging domestic production, approximately 32 mb of capacity is expected to be completed including projects in Houston, Corpus Christi and Beaumont (all in Texas), at the LOOP terminal, Okarche in Oklahoma and the Canadian terminals of Fort Saskatchewan and Hardisty.

Meanwhile, in Europe, despite strict EU environmental legislation, a number of projects are nearing completion. In Poland, as more crude is imported by sea, a 2.3 mb facility is due to be commissioned in early 2016 at Gdansk. The Netherlands is expected to see a near-1 mb expansion at the Rubis terminal in Rotterdam while a further 1 mb project will also be commissioned in central Germany to aid the distribution of refined products and petrochemicals.

Despite these projects, current spare capacity and the re-opening of previously decommissioned sites, the expectation is that stock builds will persist throughout 2016 and that the scale of these will likely see tank tops come under pressure. However, this pressure could subside somewhat in 2017 upon the opening of several mega projects, notably in Oman. Nonetheless, depending on their completion date, these projects may arrive too late to prevent the return of significant volumes of oil being stored on tankers at sea.   

Recent OECD industry stock changes

OECD Americas

Commercial inventories in OECD Americas rose counter-seasonally by 5.0 mb in November as both crude oil (+2.4 mb) and NGLs and other feedstocks (+1.4 mb) built. Consequently, inventories extended their recent record surplus and stood 213 mb above average at end-November. Despite an increase in regional refinery runs, crude oil stocks built after US production remained resilient in the face of falling oil prices while inventories were also pushed higher by increasing seaborne imports as the WTI - Brent spread narrowed.

Refined products largely adhered to seasonal trends and added 1.3 mb over November as a sharp 10.4 mb draw in 'other products' (which largely bypass the refinery system), driven mainly by higher US propane demand for space heating, was more than offset by builds in other refined products which rose as regional refinery activity increased and demand growth eased. Middle distillates holdings rose by 6.8 mb, far steeper than the 1.0 mb five-year average build for the month. Accordingly, the surplus of stocks versus the five-year average more than doubled to 10.6 mb from 4.8 mb one month earlier and stood 22 mb above year-ago levels. Motor gasoline inventories built by 4.3 mb and stood a slim 0.7 mb above average at end-month. In terms of days of forward demand cover, refined product holdings provided 30.5 days of cover at end-November, 0.1 days above the October level and 1.5 days above the year-ago level.

Weekly data from the US Energy Information Administration (EIA) indicate that US commercial inventories continued to build counter-seasonally in December after they inched up by 0.1 mb during a month when they have drawn over the past five years by an average of 13.8 mb. Accordingly, at end-month they stood a record 225 mb above average. Although US crude oil stocks remained at November's level of 502 mb, December saw draws in PADD 3 (-0.8 mb) PADD 4 (-0.2 mb) and PADD 2 (-0.1 mb) while PADD 1 and PADD 5 posted builds of 0.6 mb apiece. Despite the draw in PADD 2 (the midcontinent), stocks at Cushing built by a further 0.5 mb and by early January stood at a record 64 mb (88% of working capacity). This added to the downward pressure on WTI that saw it drop to near-$30/bbl at the time of writing.

Inventories of refined products inched down by 0.7 mb as 'other products' dropped by 5.6 mb although this was only half of the average draw for the month. During December, weather in many parts of the US remained warmer than usual and this likely saw space heating demand for propane remain lower than in previous years. Although both middle distillates (+3.9 mb) and gasoline (+1.2 mb) posted builds, these were more gentle than normal. By end-month, middle distillates stood at a 9.0 mb surplus to average levels while motor gasoline had slipped to a 7.6 mb deficit.

OECD Europe

Industry holdings in OECD Europe were pressured 1.3 mb lower in November after crude oil, NGLs and other feedstocks drew by a combined 5.7 mb. Nevertheless, the surplus of regional total oil stocks to average levels remained close to October's level of 50 mb. Despite regional refinery throughputs falling by over 200 kb/d during the month, product stocks rose by 4.4 mb with all product categories building except 'other products' (-0.1 mb). Middle distillates added a broadly seasonal 2.5 mb to end the month 37 mb above average. Following the steep builds in products over the second half of 2015, by end-November, total refined products covered 41.5 days of forward demand, level with one month earlier but 3.7 days above one year earlier.

Preliminary data from Euroilstock suggest that European inventories defied seasonal trends and rebounded by a steep 9.5 mb in December. As refinery throughputs dropped by a further 0.1 mb/d, crude oil accounted for the entirety of the build and added 9.9 mb which more-than-offset a 0.4 mb draw in refined products as motor gasoline (+0.4 mb) and 'other products' (+0.4 mb) posted builds while middle distillates (-1.2 mb) and fuel oil (-0.1 mb) drew. As heating demand ramped up as the weather turned colder and as low water levels hindered the supply of product to central Europe, German heating oil stocks sank by a relatively steep 3% to stand at 60% of capacity in early December. Additionally, the aforementioned logistical supply issues saw stocks of refined products in independent storage in Northwest Europe remain stubbornly high during December.

OECD Asia Oceania

Commercial stocks in OECD Asia Oceania drew seasonally by 3.7 mb in November. Crude oil stocks plummeted by 7.0 mb in line with regional refiners hiking their throughputs by over 200 kb/d during the month and likely outpaced imports. Nonetheless, by end-month, regional stocks stood at a 20 mb surplus to average levels with a 28 mb surplus in crude, NGLs and other feedstocks more-than-offsetting an 8 mb deficit in products. All product categories bar 'other products' (+1.1 mb) posted builds in November. Notably, fuel oil added 1.7 mb amid a weak regional market and limited opportunities to ship product to Singapore as inventories there remained obstinately high. Middle distillates rose by 0.9 mb to end the month 1.2 mb below average. All told, regional refined product inventories covered 19.3 days of forward demand, 0.5 days below end-October and 1.1 days below one year earlier.

Weekly data from the Petroleum Association of Japan suggest that inventories there drew by 1.9 mb in December as, despite refinery runs surging by nearly 200 kb/d, refined products fell by 1.4 mb. Only 'other products' rose while fuel oil (-2.1 mb) and middle distillates (-0.8 mb) and motor gasoline holdings remained stable. This more-than-offset a 3.9 mb rise in crude oil, likely as imports increased. By month-end, Japanese total oil inventories remained a slim 1.5 mb above average.

Recent developments in Singapore and China stocks

Data from China Oil, Gas and Petrochemicals (China OGP) indicate that Chinese commercial oil inventories inched down by an equivalent 1.7 mb in November (data are reported in terms of percentage stock change). However, data suggest that the 'gap' between crude supply (domestic production plus net imports) and refinery throughputs remained positive implying an unreported 9 mb stock build in November leaping to 44 mb in December. Data have now signalled seven consecutive builds through the end of 2015 and while reports suggest that SPR fill has slowed recently, it is understood that independent 'teapot' refineries have begun to build crude stocks following the Chinese administration's decision to permit these refineries to import and run crude oil (see Chinese independents win crude import quotas: still teapots? in 12 August 2015 OMR). Indeed, this factor is the likely driver behind the steep build in December. Furthermore, while the Chinese National Bureau of Statistics recently indicated that by mid-2015 China held strategic reserves of about 190 mb, it has been reported that construction delays have resulted in a number of SPR sites, originally scheduled to be commissioned in 2015, being deferred to 2016.

In November, Chinese commercial refined products stocks built in line with increasing refinery throughputs. This increase was driven by gasoline holdings (+4.3 mb) which restocked after relatively robust demand over the second half of the year. Meanwhile, gasoil and kerosene stocks dropped by 0.9 mb apiece with holdings of the former likely pressured lower by exports remaining high as Chinese domestic demand continues to underwhelm.

Despite drawing by 1.1 mb on a monthly basis, land-based refined product inventories in Singapore remained well above both average and year-earlier levels throughout December. Soaring light distillates holdings buttressed stocks and after a steep 1.3 mb build occurred in the first week of January. This was driven by increased inflows from China and the Middle East and saw stocks surge to eleven-month highs. In contrast, fuel oil inventories dropped as bunkering activity picked up as vessels took advantage of the lowest prices since 2003 and as imports from Russia and Europe reportedly fell.



  • Markets were routed in December as persistent oversupply, bloated inventories and a slew of negative news pressured prices steadily downwards so that by mid-January crude prices touched twelve-year lows. At the time of writing, both ICE Brent and NYMEX WTI had sunk below $30/bbl. ICE Brent was last trading at $28.86/bbl with NYMEX WTI forty cents higher at $29.26/bbl.
  • Despite the fall in crude prices, the contango structure of crude and products futures markets remained relatively stable with time spreads remaining at levels that do not support floating storage.
  • Spot product prices shadowed crude prices and plummeted across the board in December and by mid-January were touching multi-year lows. Nonetheless, in percentage terms, prices for products at the top of the barrel held up better than those in the middle and bottom of the barrel while Asian cracks remained robust with naphtha cracks hitting multi-year highs after they were boosted by the relative weakness of Dubai crude amid fierce regional competition from competing sour grades.
  • Rates for crude tankers were stable in December, bar very-large-crude-carriers (VLCCs) which closed 2015 in style as rates on the Middle East Gulf to Asia route hit levels not seen since May 2008. Product tankers, meanwhile, experienced a mixed month with those in the east firming on brisk naphtha trade while transatlantic rates softened as arbitrage windows narrowed.

Market overview

Oil prices plummeted in December as persistent oversupply, bloated inventories and a slew of negative news pressured all benchmarks steadily downwards so that by mid-January crude prices touched twelve-year lows. At the time of writing, both ICE Brent and NYMEX WTI had sunk below $30/bbl. ICE Brent was last trading at $28.86/bbl with NYMEX WTI forty cents higher at $29.26/bbl.

Markets remain extremely volatile but they largely shrugged off Middle East tensions as Saudi and Iran engaged in sabre rattling and cut off diplomatic relations, while US crudes gained some strength from the congressional decision to lift the forty-year old ban on exporting US crude oil. Consequently, the ICE Brent - NYMEX WTI spread narrowed steadily so that by early-January WTI was briefly trading at a slight premium to Brent. Despite a narrow spread attracting an uptick in transatlantic imports to the US over recent months, WTI once again moved to a premium versus Bakken crude that may have opened the arbitrage to move Bakken by train to the Atlantic coast. This would theoretically choke off African exports to the region. In the East, Asian markets remained weak as Middle Eastern sour crude producers continued to ship high volumes amid prospects for a swift easing of Iranian sanctions and for an increase in refinery maintenance towards the end of the first quarter. Accordingly, the discount of regional benchmark Dubai against Brent increased to over $6 /bbl in January, the widest since August 2013.

Product markets also remained weak. Notably, middle distillate cracks sank to multi-year lows of under $10 /bbl due to bloated inventories and warmer-than-normal weather that limited space-heating demand. Despite this weakness, the contango in both European and US gasoline markets remained stable and relatively flat as the back of the forward curve dropped in tandem with the front. The bright spot in the market was naphtha, where strong petrochemical and gasoline blending demand saw cracks hit multi-year highs, especially in Asia.

Futures markets

Futures prices plummeted in December on weak market fundamentals, expectations that Iranian sanctions will soon be lifted, a strengthening US Dollar in the wake of the US Federal Reserve's decision to increase interest rates by a quarter of a percent, weak economic numbers and turmoil in financial markets. On a monthly average basis, ICE Brent lost $7.03/bbl in December and was last trading at $28.86 /bbl. NYMEX WTI held its value better and slipped by $5.59/bbl on average in December after some bullish sentiment arose from the decision to immediately lift the US crude export ban. WTI rose to a slim premium over ICE Brent during the last few trading days of the month. Nonetheless, on news from the EIA of another stock build and in the wake of the easing of Iranian sactions, WTI slipped below $30 /bbl and was last trading at $29.26/bbl.

Despite the fall in crude prices, the contango structure of futures markets (where oil for prompt delivery is sold at a discount to oil delivered later) remained relatively stable with time spreads continuing at levels which do not support floating storage. In early January, the spread over the first three months of the ICE Brent contract stood at $1.32/bbl compared to $0.95/bbl one month earlier. The spread would have to reach about $4.50/bbl to cover storage costs. The contango in the NYMEX WTI market is slightly steeper as inventories at the Cushing Oklahoma storage hub - the contract's delivery point - hit a record 64 mb in early January, pressuring the front of the forward curve down. Consequently, the spread over the first three months stood at $2.32/bbl. After the repeal of the US crude export ban, in theory it is now possible to store US oil on the water. However, in order for such a cargo to be delivered to a US terminal, it would be required to be stored on a Jones Act compliant vessel that would increase the cost of storage by a factor of three.

The contango in product markets also remained stable. In the European ICE gasoil market, where prices at the front of the curve sank by nearly 20%, the back of the curve moved in tandem so that by early-January, the contango remained in line with early-December and unsupportive of storing products at sea. A similar picture prevailed in the US where the NYMEX heating oil contract remained in contango and saw prices weaken further in early January despite the onset of colder weather.  

As prices tumbled further in December, money managers further slashed their net long positions in relation to NYMEX WTI. As of 12 January data, their long-to-short ratio, an indicator of fund's overall positioning, touched its lowest level since 2008. Funds have been less responsive towards ICE Brent, as positioning became more polarized, with both net-shorts and net-longs growing, reflecting more disperse market expectations.

Traders cut their overall long WTI contracts to the lowest in more than eight years, a sign users are ever less willing to lock in a ceiling for their purchase and are expecting further declines.

The latest price drop had an immediate impact on option markets. Implied volatility, a standardized indicator of options prices that typically rises in times of market stress, climbed to over 65% at the time of writing, yet another post-2008 high. Locking in a $30/bbl floor on the June 2016 Brent contract, trading at just above $34/bbl in early January, would cost around $2/bbl. A higher floor, at $33/ bbl, is currently trading at $3/bbl, almost 10% of the contract value. The floors, with implied volatility at 25%, would cost respectively $1.2/bbl and $0.36/bbl.

Spot crude oil prices

Spot crude oil prices weakened across the board in December and by early-January were plumbing twelve-year lows as the persistent oversupply in global crude markets weighed heavy. Nonetheless, light crudes took some strength from robust gasoline and naphtha cracks. In contrast, the weakest performance was posted by sour crudes after ample supplies of competing sour Middle Eastern grades and the prospect of Asian refinery turnarounds at the end of the first quarter forced prices downwards. This saw the discount of Dubai versus North Sea dated briefly increase to $6.12/bbl in early January, the widest since August 2013. Nonetheless, it dropped back to about $2/bbl by mid-January.

North Sea grades continued to weaken in December as the current oversupply in oil markets weighed heavy with further negative sentiment arising from expectations that Iranian sanctions would be eased early in 2016. Northwest Europe is seemingly awash with crude as North Sea loadings remain above year-ago levels while imports from the FSU, Middle East and Africa also compete for market share. Accordingly, regional benchmark North Sea Dated weakened by $6.13/bbl over December and by early January was trading below $30/bbl for the first time since February 2004.  

Despite all North American crudes weakening in December, some bullish sentiment came from the mid-December decision by the US Congress to lift the decades-old ban on the exportation of US crude oil. Although US crudes immediately firmed in the aftermath of the decision, and added to bullish sentiment coming from forecasts for a slowdown in US domestic production, they soon continued their downward trend. However, this weakening was at a slower pace than for North Sea Dated and by late-December, WTI had risen to a slight premium against the North Sea benchmark. Indeed, until 2010, in the wake of surging US domestic production, WTI had previously held a premium over North Sea dated due to its light, sweet nature and associated favourable light and middle distillate yields. Similar positive sentiment also saw LLS move to a premium of $2.80/bbl over North Sea Dated in early-January.

So far, the lifting of the export ban has not resulted in large extra volumes of US crude moving to markets outside North America. However, Vitol reportedly shipped one cargo from Enterprise's terminal on the Houston Ship Canal, which, considering the economics of the narrow Brent - WTI spread, appears largely symbolic. This cargo has reportedly been shipped to Italy. Until WTI or LLS falls to a $2.60 /bbl discount against Brent, a spread sufficient to cover transport costs, the prospects for large-scale transatlantic exports of US crude oil are slim.

The positive sentiment buttressing WTI did not spread to all US domestic crudes. Bakken saw its premium over WTI eroded during December so that by early-January, the grade had slipped to a discount of nearly $2.00/bbl for the first time since late-August. Much of the downward momentum came from data suggesting that drilling activity in the formation has been more resilient than first thought. This discount has likely re-opened the rail arbitrage to ship the grade eastwards to refiners in PADD 1 (the Atlantic Coast) which may push out some transatlantic imports which had rebounded over 4Q15.

The North American sour crude market has also deteriorated significantly over recent weeks. After cutting OSP's in recent months, Saudi Arabia kept the price formulae unchanged for February loadings. Meanwhile, in order to keep market share, Canadian producers have been forced to slash prices. Accordingly, Western Canadian Select is now trading at under $18/bbl. This strategy appears to be working with the US importing a near-record level of 2.4 mb/d of Canadian crude in early January.

As competition in Europe remains fierce, Russian Urals saw its premium to North Sea Dated widen over recent weeks. Despite a month-on-month decrease, loading schedules suggest that Russian crude exports remained relatively high in December. Accordingly, by early-January Urals for Northwest European and Mediterranean customers stood $3.00/bbl and $1.60/bbl below Dated Brent, respectively. Further downward pressure may also have come from reports suggesting the quality of Urals has deteriorated recently and that it has become slightly more heavy and sulphurous as more light Western Siberian crude is shipped eastwards where it is exported as part of the ESPO stream. Indeed, as Asian sour crude markets remain extremely weak, ESPO saw its premium to Asian benchmark Dubai remain at nearly $6/bbl in December before slipping slightly in early January and was last trading at about $33.60 /bbl, around $6/bbl higher than Urals.

African crudes fared relatively well in December compared to previous months after soaring Asian naphtha cracks saw buyers step into the market. Accordingly, increased volumes set sail for China and India, which helped to clear the overhang of barrels that had built up over previous months. This saw the premiums for both Saharan Blend and Bonny Light versus Dated Brent rise steadily over the month, although they remain significantly below year-ago levels. African sour crudes did not fare as well amid healthy exports from Middle Eastern producers. Angolan exports to Asia reportedly tailed off in December as shipping costs rose. However, they rebounded in January on demand from Europe and China.

In early January, Saudi Aramco released their official selling prices for February loadings. Despite Asian sour crude markets remaining weak, the price formulae for Asian buyers were raised. However, as the Kingdom prepares for a possible increase in Iranian crude exports, the formulae for European customers were cut. Notably, the formulae for all grades for buyers in Northwest Europe was cut by more than for those in the Mediterranean due to the relative weakness of markets in the North of the continent as they struggle to absorb high volumes of Russian exports and robust North Sea supplies.

Spot product prices

Spot product prices followed crude prices and plummeted across the board in December to touch multi-year lows. Nonetheless, in percentage terms, prices for products at the top of the barrel held up better than those in the middle and bottom of the barrel. Notably, naphtha prices took strength from robust demand from the petrochemical industry, especially in Asia. Meanwhile, middle distillates prices in all markets were pressured by stubbornly high inventories and warmer-than-usual weather in the northern hemisphere. Asian cracks also held their levels better than elsewhere after they were boosted by the relative weakness of Dubai crude amid fierce regional competition from competing sour grades.

Gasoline cracks in Singapore firmed by $3.89/bbl in December on a monthly average basis, far higher than in other markets. This came as Dubai crude sank by more than other benchmark grades, while spot prices also took some strength from high regional demand, offsetting the negative effect of stubbornly high light distillate stocks. In the US, gasoline cracks firmed as spot prices were buttressed by relatively high domestic demand as well as healthy export demand from West Africa and Latin America. On the other hand, as US import demand waned due to end-year 'last in first out' tax accounting constraints, European gasoline cracks declined.

Naphtha cracks surged to multi-year highs in all markets with spot prices strong on petrochemical and gasoline blending demand in Asia and Europe. In Singapore, cracks briefly exceeded $14/bbl in early-January but fell thereafter on a sharp stock build in light distillates. In Europe, cracks firmed but remained about $5/bbl lower than in Asia after markets tightened in the wake of a wide arbitrage to ship product to East of Suez markets. A similar trend emerged in the Middle East after refiners there also supplied Asian markets which saw cracks breach $10/bbl.

As in recent months, high inventories pressured middle distillates cracks downwards. Unlike end-2014, when diesel cracks remained remarkably resilient in the face of plummeting oil prices, the end of 2015 saw cracks plumb multi-year lows across all markets. In Northwest Europe where imports from Russia remain high and as logistical issues still hinder the movement of products from the ARA region to central Europe, cracks sank to below $10/bbl in mid-December, about $6/bbl less than the year earlier. Cracks on the US Gulf Coast declined by a similar amount to those in Europe as stocks remained ample while the arbitrage to ship product eastwards remained stubbornly shut. In Singapore, gasoil cracks posted the sharpest losses among products in December decreasing by $3.34/bbl on a monthly average basis. Downward pressure came from high inventories while Asian markets reportedly remain awash with product in the face of high Chinese exports.

In percentage terms, fuel oil spot prices softened the most amongst products after posting declines of more than 20% on persistent oversupply. Accordingly, bunker prices sank to their lowest levels since 2003 in all main transport hubs. In Europe, the Mediterranean fared better than Northwest Europe as markets reportedly took a degree of strength from North African and Asian export demand. Nonetheless, the arbitrage to move product eastwards was slim due to the high costs of VLCCs which have firmed on the back of increased crude trade. In Singapore, market fundamentals remained loose with imports from Europe and elsewhere in Asia offsetting an increasing in bunker demand as shippers reportedly took advantage of low prices.


Surveyed crude rates had a stable month overall except for very-large-crude-carriers (VLCCs). The larger vessel class closed 2015 in style on the Middle East Gulf to Asia route where rates reached $28.12 /t for December, the highest since May 2008. Increased activity ahead of the holiday season added to already strong underlying demand, while the tonnage list was made shorter by weather delays in China and the instalment of a fifth single point mooring (SPM) in Iraq, which reportedly required the suspension of operations at three operational SPMs for two days. Rates eased in early January as temporary factors faded but they are still high. VLCCs owners saw exceptional earnings in 2015: extra volumes from the OPEC Gulf producers provided ample demand, while tanking bunker costs further improved economics. Collapsing crude prices fed through into bunker fuel costs which fell below 2008 levels, even falling to close to $100/t in Rotterdam.

Suezmax loadings in West Africa fell from just above 3 mb/d in November to around 2.1 mb/d in December, as disruptions in Nigeria weighed on supply (see Supply). Nevertheless, rates on the benchmark West Africa - UK route held surprisingly steady. A close look at fixtures shows that on a weekly basis activity did not drop much and was heavily concentrated ahead of the holiday season. During the final week of the year, rates remained flat on very thin chartering on the benchmark route.

Aframax rates in the North Sea and Baltic markets began the month inching down from November's stronger rates to around the $10/mt mark. Ship supply increased in the Baltic, softening rates in November. In January, ice-class restrictions have come into effect earlier than anticipated at Baltic ports, including Primorsk, Ust-Luga and Vysotsk, which might provide some support.

Larger long-range (LR) product tankers on the MEG - Japan route saw renewed strength in December. As Middle Eastern refiners came back from maintenance, cargo inquiry began to pick up, lifting the rate by $10/mt to just shy of $30/mt (around $3.20/bbl), supported by a rising naphtha differential to Gulf prices. Abundant fleet supply, following a previously even higher arbitrage from Europe that brought in cargoes from as far as the Baltic, reportedly put a lid on freight rates.

Cross-Atlantic trade saw little excitement in December. The UK - US Atlantic route remained subdued as gasoline stocks increased on the US East Coast. The backhaul US Gulf - UK remained subdued, as the diesel arbitrage remained firmly shut for most of the month. Demurrage delays due to capacity constraints in the ARA region further backed away incoming tankers.

Medium-range (MR) tankers on the benchmark Singapore - Japan route further eased below $15 /mt in December. Cargo inquiry was slow due to lower kerosene volumes moving to Japan due to mild weather (See Demand). Increased Chinese product exports surged on the year, in December at an historical high of $4.32/mt, up from $2.82/mt one year ago according to customs data, should put a floor under demand.



  • Global crude runs averaged 79.5 mb/d in 4Q15, down 0.3 mb/d on last month's estimate due to lower-than-expected throughputs mainly in Other Asia. In line with sharply lower demand growth, annual gains in refinery throughputs eased to  1.2 mb/d in 4Q15, with OECD countries responsible for 40% of the increase.
  • Global refinery runs are expected to remain stable in 1Q16, to 79.5 mb/d. Annual growth remains relatively high at 1.3 mb/d. Unlike in 4Q15, the non-OECD region is responsible for all of this increase - with, in turn, half of this claimed by the Middle East.  
  • October experienced a very high maintenance schedule and runs came down to 77.4 mb/d, 1.6 mb/d below September. Throughputs are estimated to have recovered rapidly in November and December.
  • Global refining margins weakened across the board in December as middle distillates cracks fell and overwhelmed the resilience of gasoline and naphtha. As a result, hydroskimming margins turned negative in Europe, putting pressure on marginal runs. However, they remained positive in Singapore.

Global refinery overview

Global refinery activity continued to pick up in December from November and October, supported by a temporary surge in most regional margins in November. In October, the most recent month for which a complete set of data is available, OECD refiners recorded an increase of 0.6 mb/d year-on-year (y-o-y) in aggregate crude throughputs, while non-OECD refinery runs fell by 0.2 mb/d, reversing the previous months' trend. For November, OECD throughput gains remain at a similarly high level, according to preliminary data. US plants accounted for two thirds of this surplus, and OECD Europe for the rest.

Global crude runs have been sustained until now by the resilience of gasoline and naphtha demand, but weakened by the lack of demand for middle distillates. However, the situation may change, as stocks of gasoline are edging up in Europe, and some colder weather and rising water levels on the Rhine, allowing normal transfers to Germany, may support middle distillates. However, middle distillates stocks are not decreasing globally, and gasoline demand in January and February will likely be muted.

On 18 December, the US congress lifted a 40-year old ban on crude oil exports, in a move often quoted as a victory for US producers at the expense of US refiners. Perhaps as a sweetener, US refiners are now allowed to offset 75% of crude transport costs against tax. The Jones Act, which adds to domestic shipping costs by imposing US built and operated ships for domestic shipping, remained untouched.

The tax reform allows producers, should domestic inland prices be very low, to transport their crude to the US Gulf and sell it at a higher netback. But the US remains a large crude importer, and exporting significant quantities of domestic crude requires that WTI FOB US Gulf - including transport and terminal costs- becomes cheaper than its international competitor, plus or minus quality and freight cost differentials. The main direct consequence of the reforms will be to limit the bumper margins obtained, especially in PADD 2, by refiners. Capping the Brent-WTI differential would also probably have an impact on supply to PADD 1, as domestic crudes such as Bakken that are moved by rail would not be as competitive as crudes from the Atlantic Basin, most likely from West Africa. However, right now, with declining domestic US production and narrow Brent/WTI differentials, US crude exports are likely to be very limited, although a light crude cargo was reported to be moving to Europe.


Refinery margins finally weakened across the board in December as middle distillates cracks fell and overwhelmed the resistance of gasoline and naphtha. As a result, hydroskimming margins turned negative in Europe, putting pressure on marginal runs. However, they remained positive in Singapore. In other markets, cracking margins were weaker, but more or less in line with historical values for December. The weaker margins may also be attributed to the fact that little maintenance took place in December and refiners were able to run at full speed. Despite these weaker numbers, 2015 margins were the highest for five years, except in the US Midcontinent. However, there are signs that by mid-January support for gasoline faltered. And naptha demand for Asia is likely to weaken seasonally on stocks draws. In the next few years, naphtha Asia supply from Saudi Arabia is due to be reduced by the expansion of Rabigh 2 and the planned mid-2016 start-up of the 1.5 mt/y steam cracker Sadara JV.

European margins eased by $2-3/bbl in December after a rebound in November, despite the weak crude prices. Cracks for ULSD plunged from over $10/bbl to $6/bbl in mid-December, at one stage below naphtha cracks. Conversely, cracks for gasoline hovered around a very unseasonal $12/bbl. Urals margins decreased by $1/bbl more than Brent ones, but margins for hydroskimming refineries were largely negative in both cases.

Refiners in Singapore saw their margins fall by around $1/bbl: those running sweet crude such as Tapis were more affected than those processing sour crude such as Dubai, as there was a huge oversupply in sour markets. This fall happened despite the gasoline crack reaching $22/bbl and naphtha $12/bbl; the gasoil crack falling to $10/bbl was a partial offset.

US refiners saw their margins mostly weaken in December but to a lesser extent than in other regions. Coking margins followed the same pattern as cracking margins at $1-2/bbl higher. This demonstrates rather robust product markets as WTI strengthened relative to other markers. The same pattern applied to product cracks: gasoline cracks edged higher over the month, with a number of incidents in gasoline-producing units, and reached close to $20/bbl while ULSD cracks collapsed to $6 /bbl, at one stage breaking the $4/bbl mark. 

OECD refinery throughput

OECD refinery intake increased by 1.2 mb/d in November versus October levels, to 38.1 mb/d, as refiners came out of maintenance. Runs remained 0.56 mb/d above year-earlier levels. Throughputs in the OECD Americas rose by 0.8 mb/d m-o-m. Throughputs in Asia were also higher by 0.33 mb/d and in Europe there was a m-o-m fall of 0.22 mb/d. Overall, OECD throughputs are forecast to drop from an average 37.8 mb/d in 4Q15 to 37.4 mb/d in 1Q16, with y-o-y growth of 0.4 mb/d and zero, expected, respectively.

Refinery activity in the OECD Americas picked up in November on higher US crude runs. Preliminary weekly figures show that US December levels are expected to rise further by 0.25 mb/d to a seasonal record-high of 16.6 mb/d on the completion of maintenance work and driven by the incentive of attractive margins. In December, an explosion in the Salina Cruz refinery reduced gasoline production in Mexico, increasing imports and boosting West Coast crack spreads.

OECD Europe crude runs decreased by 0.2 mb/d in November, with very little maintenance, but remained 0.2 mb/d above year-earlier levels. Despite this m-o-m fall, preliminary November data shows Germany and Italy posting monthly growth.

In OECD Asia Oceania, total crude throughputs increased by 0.2 mb/d in November from a month earlier, to 6.6 mb/d, marginally below last year. Japanese refinery runs increased by 0.2 mb/d in November and preliminary weekly figures indicate that December runs in Japan could be another 0.2 mb/d higher.

Non-OECD refinery throughput

In October, non-OECD refinery runs decreased by 0.6 mb/d from September, to 40.5 mb/d. Throughputs averaged 0.5 mb/d above a year earlier. 4Q15 is estimated at 41.6 mb/d. Annual gains in 4Q15 were lower and due mainly to the Middle East.

Official Chinese refinery data for November shows very high throughputs of 10.7 mb/d, up by 0.27 mb/d from an already high level in October and 0.4 mb/d above a year earlier.

For the second successive occasion in December, the Chinese government decided not to revise oil product prices down as should have been the case using the official adjustment calculation. Not cutting prices in theory curbs the use of cars and limits pollution. Higher product prices will also result in higher domestic margins for refiners. However, on 13 January a downward revision was announced, together with the announcement of a new mechanism that will stop revisions when crude prices fall below $40 /bbl.

Another development in China is the allocation of the first export quotas for 2016. There are usually four quotas per year, however this one, at 21 million tonnes, is much higher than those of 2015, comprised between 3 and 10 mt each. It is also noticeable that the gasoil figure is the largest at nearly 9 mt or 750 kb/d over one quarter compared to previous quota of 3.3 mt of gasoil when monthly gasoil exports reached 250 kb/d. Finally, as expected, some teapot refineries received limited export quotas, around 0.5 mt for five companies. This opens the door to even greater Chinese exports in a world awash with distillates, although logistical issues make it more difficult for teapot refineries to export products.

China also introduced a low sulphur emission zone for shippping in the Pearl and Tangtze river deltas plus the Bohai ring (Beijin, Tianjin, Hebei) where fuel burned must contain less than 0.5% sulphur. This will switch very limited quantities of fuel oil to gasoil.

Other Asia experienced slightly lower throughputs in October, at 9.7 mb/d, but the end of the maintenance season should see runs start to rise.

Indian refinery throughputs edged up by 450 kb/d m-o-m in November, to 4.7 mb/d. IOC's Haldia refinery is entering maintenance for one month, cutting runs by 150 kb/d. In India, the Government decided to ban sales of large diesel cars in New Delhi and make it more costly for trucks to enter the city, in an effort to limit pollution. The current fuel and car emissions specification being implemented is Bharat IV. Bharat V was due to take effect in 2020, but the government announced that they will instead move directly to Bharat VI (the equivalent of Euro 6), also in 2020. It remains somehow doubtful that carmakers and refiners can make the necessary adjustments in time. Finally, the government has also scaled up ethanol blending targets in gasoline from 5% to 10%. Commercial production of diesel, kerosene and LPG started at the end of November in the IOC's new 300  kb/d Paradip refinery, which is expected to reach maximum capacity by April 2016.

In October, FSU throughput declined by 0.25 mb/d to 6.5 mb/d, due to maintenance. According to preliminary data, Russian refinery runs slightly increased in December from November, to 5.8 mb/d, the level of 2014.

Latest data show that total Middle Eastern throughputs were slightly lower in October than in September, at 6.8 mb/d. However, this translates into a 0.6 mb/d increase y-o-y. In Saudi Arabia, October saw a large maintenance programme, with Jubail and PetroRabigh shut down. Ras Tanura was also closed in late October.

In Latin America, runs continue at unusually low levels, with October throughput estimated at 4.4 mb/d. Brazilian refinery runs slid 90 kb/d in November, to 1.9 mb/d, in part because of problems with the re-start of the 178 kb/d Cubatao refinery.

In Africa, October throughput was 2.2 mb/d, 0.1 mb/d above last month but still lower y-o-y. NNPC restarted its Warri, Kaduna and Port Harcourt refineries in December, but there is still no indication as to the effective production rates. Fuel subsidies seem to be on the way out in Angola and Nigeria, with Angolan domestic prices increasing by 40% for gasoline and 80% for diesel, while no provision is being made in the 2016 Nigerian budget for subsidies.