Oil Market Report: 13 September 2016

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  • Global oil demand growth is slowing at a faster pace than initially predicted. For 2016, a gain of 1.3 mb/d is expected – a downgrade of 0.1 mb/d on our previous forecast due to a more pronounced 3Q16 slowdown. Momentum eases further to 1.2 mb/d in 2017 as underlying macroeconomic conditions remain uncertain.
  • World oil supplies fell by 0.3 mb/d in August, dragged lower by non-OPEC. At 96.9 mb/d, global oil output was 0.3 mb/d below a year ago, but near-record OPEC supply just about offset steep non-OPEC declines. Non-OPEC supply is expected to return to growth in 2017 (+380 kb/d) following an anticipated 840 kb/d decline this year.
  • OPEC crude production edged up to 33.47 mb/d in August - testing record rates as Middle East producers opened the taps. Kuwait and the UAE hit their highest output ever and Iraq lifted supplies. Output from Saudi Arabia held near a record, while Iran reached a post-sanctions high. Overall OPEC supply stood 930 kb/d above a year ago.
  • The anaemic outlook for refining throughput extends further amid downward revisions to our 2H16 forecast. Refinery runs in 2016 are set to grow at the lowest rate in a decade.
  • OECD total inventories built by 32.5 mb in July to a fresh record of 3 111 mb. As refinery activities reached a summer peak, crude oil inventories refused to decline until an exceptional storm-related draw hit the US in late August.
  • Oil prices rallied in early August, rising from four-month lows near $42/bbl to briefly above $50/bbl amid peak summer demand for crude oil, which is expected to lead to the first quarterly crude stock draw in more than two years. At the time of writing, Brent futures had retreated to around $48.45/bbl while WTI was at $46.35/bbl.


When will the world oil market return to balance? That is the big question today. With the price of oil at current levels, one would expect supply to contract and demand to grow strongly. However, the opposite now seems to be happening. Demand growth is slowing and supply is rising. Consequently, stocks of oil in OECD countries are swelling to levels never seen before.

Our latest numbers provide some clues as to why. Recent pillars of demand growth China and India are wobbling. After more than a year with oil hovering around $50/bbl, the stimulus from cheaper fuel is fading. Economic worries in developing countries havent helped either. Unexpected gains in Europe have vanished, while momentum in the US has slowed dramatically.

The result has been a slump in oil demand growth from a robust 1.4 mb/d in the second quarter to a two-year low of 0.8mb/d in the third. Even with a modest weather-related uptick forecast for the end of the year, oil demand growth in 2016 will struggle to get above 1.3mb/d. Refiners are clearly losing their appetite for more crude oil. During the fourth quarter, they are expected to process only 0.1 mb/d more crude than a year ago.

The picture on the supply side is equally confounding. Despite oils collapse and resulting investment cuts, global oil production is still expanding although nowhere near the breakneck pace of 2015. High-cost non-OPEC producers have been hit particularly hard. Around 1.4 mb/d has been shut in since the end of 2014. The US the former engine of non-OPEC supply growth accounts for more than half the decline as investment cuts by independent producers have had an almost immediate impact.

However, the loss has been more than made up for by OPEC. Saudi Arabia and Iran have each raised oil output by over 1 mb/d since late 2014 when OPEC shifted strategy to defend market share rather than price. Saudi Arabias vigorous production has allowed it to overtake the US and become the worlds largest oil producer. Indeed, OPECs low-cost Middle East producers - Saudi Arabia, Kuwait, the UAE and Iraq - are all at or near all-time highs, while Irans post-sanctions ramp up has been swift.

Our forecast in this months Report suggests that this supply-demand dynamic may not change significantly in the coming months. As a result, supply will continue to outpace demand at least through the first half of next year. Global inventories will continue to grow: OECD stockpiles in July smashed through the 3.1 billion barrel wall. As for the markets return to balance - it looks like we may have to wait a while longer.



  • Global oil demand is forecast to grow by 1.3mb/d in 2016, a downgrade of 0.1mb/d on our previous forecast due to a more pronounced 3Q16 slowdown. Momentum eases further to 1.2mb/d in 2017 as underlying macroeconomic conditions remain uncertain.
  • The severity of the 3Q16 slowdown has surprised, with year-on-year (y-o-y) growth plunging to 0.8mb/d due to vanishing OECD growth and a marked slowdown in India and China. Since peaking at a near five-year high of 2.3mb/d in 3Q15, y-o-y global oil demand growth has steadily decreased easing to 1.6mb/d in 1Q16 and 1.4mb/d in 2Q16 an evolution forecast through a year of Reports .
  • One of the biggest 3Q16 downgrades is in Europe, which sees its first y-o-y decline in one-and-a-half years due to a sharp slowdown in France, Austria, Finland and Italy.
  • A dramatic deceleration in China and India which slowed non-OECD Asian 3Q16 growth to a two-year low is the other major forecast change. Chinese demand growth all but disappeared as the economy continued to restructure and slow, while heavy flooding curbed gains in road transport and blue sky policies ahead of Septembers G20 meeting restrained industrial demand. Indias expansion continued to slow sharply, with y-o-y growth easing to a 16-month low.
  • The latest US data show June deliveries 240kb/d (or 1.2%) up on a year ago, closely matching our recent forecast. This three-month US growth high was attained as the previously heavily declining US gasoil market appeared to bottom-out.
  • After three consecutive monthly y-o-y declines, Russian oil demand rebounded somewhat in July, rising 50kb/d (or 1.3%) compared to a year ago. Strong gains in industrial products are behind this potential recovery, an indication that the Russian economic slowdown may be nearing an end.


After rising through the past one-and-a-half years, preliminary 3Q16 OECD data suggest a levelling-off in y-o-y terms as growth all but vanished. The outlook in Europe turned gloomy as the weakening industrial backdrop triggered outright declines in gasoil/diesel and residual fuel oil demand. Although OECD oil deliveries are still forecast to return to y-o-y growth in 4Q16, only a modest expansion of around 35kb/d is foreseen due to a still precarious macroeconomic situation. For the year as a whole, total OECD oil deliveries are forecast to average 46.4mb/d, 205kb/d up on the year earlier, supported by relatively strong gains in gasoline (chiefly in the US) and jet/kerosene (across the OECD). The pace of this expansion amounts to just half that achieved in 2015 when crude oil prices initially broke below $50/bbl. OECD oil demand growth is forecast to virtually disappear in 2017, with persistent gains from the petrochemical sector offset by outright declines in residual fuel oil and other products.


Oil deliveries across the OECD Americas continue to inch higher, up by around 80kb/d on a y-o-y basis in 3Q16, to 24.9mb/d. Demand growth attained its most recent peak, at 410kb/d y-o-y in 2Q15, before plunging into negative territory (-150kb/d) in 4Q15, pulled down by sharp declines in gasoil/diesel deliveries. Given the recovery that appears to be taking hold in US distillate markets a modest uptick is forecast for 4Q16.

US oil demand averaged roughly 19.8mb/d in June as forecast in last months Report equivalent to a y-o-y gain of 240kb/d or 1.2%. Recovering gasoil demand lay behind Junes acceleration, as alluded to in the April Oil Market Report : we foresee the US gasoil market bottoming-out around the middle of the year. Essentially flattening out after eight consecutive months of heavy falls, US gasoil demand averaged 3.9mb/d in June, 50kb/d above the previous forecast.

US gasoline demand also remains strong, rising by 275kb/d (or 2.9%) y-o-y in June, according to the most recent official monthly data. Preliminary estimates of July/August demand suggest continued gains of more than 200kb/d in US gasoline deliveries, with US drivers increasingly taking to the roads. The latest data from the US Department of Transports Federal Highway Administration cited seasonally adjusted US vehicle miles travelled rising by 2.9% y-o-y in June, and 0.5% up on May alone. For the year as a whole, total US oil deliveries are forecast to average 19.6mb/d, 205kb/d or 1.0% up on the year, with growth easing to around 85kb/d or 0.4% in 2017 as higher crude oil prices potentially dampen US demand growth. Gasoline provides the majority of this forecast growth.

Supported by strong gains in gasoline, Canadian oil deliveries rose in each of the last four months of available Canadian demand data. Up by an average 40kb/d y-o-y through this March-June period, Canadian gasoline demand accounted for the lions share of total demand growth. Robust gasoline demand gains are due to relatively low pump prices and the reasonably benign state of the Canadian consumer sector, Statistics Canada cited retail sales growth of 2.7% across the economy as a whole in June.


Having held up remarkably well in June, preliminary European oil demand data point towards sharply deteriorating conditions in July. Particularly dramatic contractions have been seen in Italy, France, Austria and Finland. Oil deliveries in the region contracted by an estimated 130kb/d (or 0.9%) y-o-y after a gain of 40kb/d (or 0.3%) in June. The recent deceleration in Europe results in a 3Q16 demand estimate of 14.1mb/d, 95kb/d down on a year earlier. Total European oil deliveries are forecast to fall in 3Q16, led south by particularly sharp drops in gasoil/diesel (105kb/d below the year earlier) and residual fuel oil (-25kb/d), both products suffering from the weakening European industrial sector. The latest industrial output numbers from Eurostat show EU industrial activity barely growing May-June, bucking the previous 2% y-o-y gains seen since early 2015.

France posted the sharpest percentage point decline of any European country in June, with oil deliveries falling by 10.8% (or 190kb/d) y-o-y to 1.6mb/d. Weak industrial and transport fuel demand pull down the overall metric. French gasoline demand was down by 3.5% y-o-y in June, while gasoil/diesel deliveries declined by 11.3% and jet/kerosene demand fell by 9.0%. Preliminary estimates of July demand put the respective drops at 3.8%, 9.1% and 2.3%. Overall in 2016, French oil deliveries are forecast to average 1.7mb/d, just 1.8% down on the year ago.

Asia Oceania

The latest data for OECD Asia Oceania, at 7.6mb/d in July, were modestly up on a year ago (+50kb/d, or 0.6%) but came out 50kb/d below last months Report , mainly due to a sharp slowdown in Korean demand. Indeed, the latest Korean estimate of 2.4mb/d for July came out 75kb/d below the prior forecast, showing a continuation of the recent slowing trend. Still up by 120kb/d (or 5.2%) on the year earlier, it shows a notable deceleration from Mays recent 310kb/d (or 14.1%) peak, which had been underpinned by rapid gains in petrochemical feedstocks and industrial oil use. Korean growth has decelerated on less dramatic gains in gasoil/diesel. This distillate deceleration slowed to +0.7% y-o-y in July, from 8.9% in May, as Statistics Korea reported overall industrial activity gains easing over a respective period to 1.6% from +4.7%. The question naturally follows what happens next? and with Markit showing the Korean Manufacturing Purchasing Managers Index slipping into net-pessimistic territory in August (48.6), further decelerations look likely. We forecast total Korean oil deliveries averaging 2.5mb/d in 2016, 130kb/d up on the year, slowing to +70kb/d in 2017 when deliveries are forecast at 2.6mb/d.

Although still falling heavily mid-year, down by 150kb/d y-o-y in June and -90kb/d in July, the scale of recent Japanese demand declines was significantly below earlier expectations (on average 40kb/d below those cited in last months Report ) as the power sector oil use surprised to the upside. As alluded to in last months Report (see Japans oil demand post Fukushima ), Japanese oil demand in the power sector fell by on average 23% since 2013, but by mid-2016 had already fallen to such a low level that the downside momentum had to wane. Julys near 30kb/d y-o-y bounce in Japanese residual fuel oil demand, after 27 months of consecutive declines, does not per-se signify a change in direction but rather the near bottom for the now very small oil-use in Japans power sector. The forecast for the year as a whole remains one of a falling residual fuel oil demand and overall Japanese oil demand, respectively down by 35kb/d (to 320kb/d) and 165 kb/d (to 4.0mb/d). The downside eases further in 2017 to a respective -30kb/d (to 290kb/d) and -90kb/d (to 3.9mb/d).


A dramatic deceleration in non-OECD deliveries has been the other major contributor to sharply slowing global oil demand growth. Since peaking at a recent +1.4mb/d y-o-y (or 3.0%) in 1Q16, non-OECD demand growth has plummeted, to 755kb/d (1.5%) in 2Q16 and 850kb/d (1.7%) in 3Q16 mainly due to marked slowdowns in gasoil/diesel, naphtha and other products.


China has been the major non-OECD decelerating influence, with preliminary estimates of 3Q16 oil demand showing the complete absence of y-o-y growth for the first time since the end of the Great Recession of 2008-09. Lower 3Q16 numbers are mostly due to government efforts to ensure blue skies at Septembers G20 meeting in Hangzhou by encouraging factories nearby to cease production, which curbed industrial oil use. These factory closures, coupled with an ongoing economic slowdown and reports of heavy flooding, dented industrial oil use and transport fuel demand. Some of these such deterrents are likely to prove temporary, supporting at least a partial 4Q16 rebound. A 25kb/d downside adjustment is applied to the overall 2016 Chinese demand forecast of 11.6mb/d, 175kb/d or 1.5% up on a year ago.

Preliminary July estimates reveal Chinese demand at 11.3mb/d, essentially unchanged on the year earlier with upside momentum restrained by notable weakness in gasoil, naphtha and residual fuel oil demand. Subdued domestic demand also redirected large quantities of oil products from Chinese shores, driving net-product imports near five-year lows in July. Adjustments in the gasoline market particularly captured the evolution, as large quantities of blended gasoline appeared in domestic Chinese demand. Hence, the true level of Chinese gasoline demand is likely to have exceeded that implied by the official data. Chinese gasoline exports rose to 265kb/d in July, just shy of Junes 310kb/d record, as large quantities of officially produced gasoline lost domestic market share to blended gasoline, forcing Chinese volumes abroad.

Bucking the otherwise weak recent Chinese demand data, jet fuel deliveries continue to rise sharply, underpinned by surging air traffic demand. The Civil Aviation Administration of China (CAAC) reported international air passenger numbers a quarter higher in the 1H16 compared to a year ago, while domestic-flight passenger numbers rose by a tenth.

Rising by an estimated 275kb/d or 2.4% in 4Q16, having flattened in y-o-y terms in 3Q16, our overall short-term Chinese oil demand forecast includes a layer of upside potential due to two key factors. Firstly, a large part of the mid-2016 slowdown is due to temporary factors, such as flooding and deliberate pre-G20 factory closures. Secondly, industrial business sentiment indicators have been suggesting a 4Q16 uptick for some time; with Caixins Manufacturing PMI rising to a one-and-a-half year high of 50.6 in July, which will particularly support 4Q16 Chinese gasoil demand.

Other Non-OECD

Mid-year Indian oil demand growth continues to slow, with Julys 3.9% y-o-y expansion at a 16-month low. A combination of heavy monsoon rains and stuttering industrial activity are behind the recent Indian slowdown. The latest month for which data on industrial activity is available shows a gain of just 2.1% y-o-y in June, according to the Ministry of Statistics and Programme Implementation, not far from the 1.4% y-o-y gain in Indian diesel demand (+1.8% in July). The recent weakening in growth has trimmed the overall Indian demand forecast for 2016 demand, to 4.3mb/d. This is still 275kb/d or 6.8% up on the previous year. A similarly sized gain is forecast for 2017, underpinned by predictions of plus7% economic growth from the International Monetary Fund.

Exceptionally weak Saudi Arabian other product demand in June saw total oil deliveries in the Kingdom fall by their widest y-o-y margin in three years, down by 215kb/d or 5.7%. This low point occurred as the power sector, which traditionally uses more oil during the hotter summer months, burned somewhat less oil. The latest data from the Joint Oil Data Initiative (JODI) show that 705kb/d of crude oil was used during June for power generation, 190kb/d less than a year ago although still up by nearly 400kb/d on February. The lower crude burn was due to a combination of high domestic power prices, efficiency measures and the ramp up of the huge 2.5 billion cubic feet per day Wasit gas plant. Last months Report cited a 170kb/d y-o-y total demand reduction in June, versus an actual drop of 215kb/d. The forecast for 2016 has, however, modestly been curtailed on the potentially more rapid rate of oil-replacement in the power sector. Deliveries are now expected to average 3.3mb/d in 2016, 30kb/d down on 2015. In 2017 oil demand growth should return albeit tentatively.

Sharp upticks have been seen in Egypt , as oil deliveries in the African nation rose by 60kb/d y-o-y in 1H16, to 850kb/d. Strong gains in both Egyptian gasoil and gasoline led the upside, as the tentative economic recovery coincided with relatively low prices. The forecast for the year as a whole has been hiked to show a gain of 65kb/d or 8.4%, as deliveries average 870kb/d. Momentum then eases to a still strong +40kb/d in 2017, as the bounce from post-2015 lows eases.

Rebounding in July, Russian oil product demand growth returned after a three-month absence to post a near 50kb/d y-o-y gain. Strong growth in industrial oil use led the upside, with Russian gasoil demand 50kb/d higher and other products 20 kb/d up, reflecting a potential end to the long bear run in Russian industrial activity. Markits Manufacturing PMI broke back into optimistic territory, rising to 51.5 in June after six months of sub-50 net-pessimism. Similarly, industrial activity, as quoted by the Federal State Statistics Service, rose by 1.7% y-o-y in June, a sharp contrast to the near-4% per annum decline seen in 2H15. With July data heavily exceeding earlier forecasts (+185kb/d), the projection for the year as a whole has been raised to show growth of 35kb/d. A modest acceleration is then forecast for 2017, +50kb/d, as underlying economic activity is likely to recovery.

Ongoing softness in Brazilian oil data saw July oil deliveries fall by 155kb/d (or 4.8%) compared to the previous year. Although Julys y-o-y drop continued a trend of 13 consecutive declines, the scale of the fall exceeded our own earlier forecasts by 45kb/d due to very weak Brazilian gasoline demand. With new vehicle sales down heavily compared to a year ago and retail sales falling sharply, gasoline deliveries eased by 4.3% y-o-y in July to 985kb/d. Despite a modest Olympic-related uptick anticipated in August, for the year as a whole Brazilian oil deliveries are expected to average 3.1mb/d, 90kb/d or 2.9% down on the previous year before inching higher in 2017.



  • After hefty gains in June and July, global oil supplies dropped by 0.3 mb/d in August on lower non-OPEC output . At 96.9mb/d, world oil production was 0.3 mb/d below a year ago, but near-record OPEC supply just about offset steep declines from non-OPEC. Including NGLs, OPEC production was an impressive 1.1 mb/d higher than a year earlier.
  • OPEC crude oil output edged up 30 kb/d in August to 33.47 mb/d - testing a record rate as MiddleEast producers turned up the taps. Kuwait and the UAE pumped at unprecedented levels and Iraq lifted supplies. Output from Saudi Arabia held near an all-time high and production from Iran bumped up to 3.64 mb/d. Overall OPEC crude output stood 930 kb/d above a year ago.
  • Saudi Arabias elevated oil production has allowed it to overtake the US and become the worlds largest oil producer. The US had held the top rank since April 2014 when the rapid rise of light tight oil saw it vault past Saudi Arabia. Since May, however, we estimate that the US has shut in 460 kb/d of high-cost production, while the low-cost oil fields of Saudi Arabia have cranked out an extra 400 kb/d.
  • Non-OPEC oil production fell by 0.3 mb/d in August to 56.4mb/d on weaker output from the US, Russia, Kazakhstan and the North Sea. Total supplies stood 1.4mb/d below the previous year with the US accounting for roughly half the annual loss. Other notable declines stemmed from China, Colombia, Mexico and Australia.
  • The 2017 non-OPEC supply forecast has been revised marginally higher due to a strong performance from Norway and a slight adjustment to Russian output. Growth of 380 kb/d is expected in 2017 following this years anticipated decline of 840 kb/d.
  • According to the new IEA World Energy Investment -2016 report - to be released on 14September major oil companies cut capital expenditure by 21% in 2016 and 19% in 2015, resulting in a $60billion reduction in upstream spending. While the drop is largely a function of significant cost deflation, a slowdown in activity and delay in projects are also factors.

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

Non-OPEC overview

After two consecutive months of rising supplies, total non-OPEC oil production declined by 0.3mb/d in August to 56.4 mb/d. The US accounted for most of the loss, while maintenance at the Exxon-operated Sakhalin field dropped Russian output to its lowest in more than a year. The massive Tengiz field in Kazakhstan was also operating at reduced levels. North Sea loading schedules indicate that output eased after a bumper month in July.

US crude production dropped by 190 kb/d in June, the latest month for which official monthly data is available, as lower Gulf of Mexico (GoM) output added to onshore declines. Despite a recent uptick in drilling activity, with 98 new rigs added to the US shale patch since May, tight oil output is expected to continue to decline for months to come. While the actual drilling and completion time for horizontal wells in the US is rather short, the average time-lag between a rig entering operation and first oil flowing is normally between five and six months. US tight oil output is expected to bottom out in 3Q16, with annual growth resuming in the second half of 2017.

US oil supply is not only about tight oil. Output from the GoM and of natural gas liquids (NGLs) is more resilient to lower prices and spending cuts - at least in the short term. NGLs, which account for roughly 30% of total US oil output, increased by more than 9% y-o-y over 1H16. Output from the GoM has also posted strong growth so far this year, although shutdowns including precautionary shut-ins of installations ahead of tropical storm Hermine in late August have curbed output in recent months.

Despite sharp spending cuts and massive layoffs, Norwegian oil output surged more than 320 kb/d in July according to preliminary data from the Norwegian Petroleum Directorate (NPD). If confirmed, July saw the highest production since March 2011. While output is likely to have eased in August and September, the outlook seems to be improving. Operators are making concerted efforts to cut costs to make projects viable in a lower price environment (see Norway does more with less ).


North America

US June actual: Total US oil supplies fell by 205kb/d in June, the latest month for which actual production figures are available. At 12.5 mb/d, US oil output was 350kb/d lower than a year earlier, with steep declines in crude oil output partly offset by higher production of natural gas liquids mostly ethane - which increased 360kb/d y-o-y.

US crude production in June stood 615 kb/d below the previous year, dropping 190 kb/d on the month to 8.7mb/d. While output was lower in all major producing regions, and tight oil production still accounts for the brunt of annual declines, it was the GoM, which recorded the largest monthly drop. GoM production, which fell by 70 kb/d, was at 1.54 mb/d - nevertheless 130 kb/d above a year earlier . An explosion at Enterprises 1.5 bcf/d Pascagoula Gas Processing Plant (PGP) in Mississippi on 27June forced the closure of BPs Destin pipeline, lowering output by roughly 100 kb/d during July.

In August, the arrival of tropical storm Hermine in the Gulf of Mexico led several operators to evacuate staff and suspend operations at offshore installations. At its peak, on 30 August, the Bureau of Safety & Environmental Enforcement estimated that a total of 350 kb/d, or 22% of total GoM production was shut in. By 2 September, however, personnel were returning to affected platforms and operations resumed. In September, BPs Atlantis field (110 kb/d) will reportedly go offline for 35days.

As for the onshore, output declines in Texas now amount to 290 kb/d compared with a year earlier, with lower conventional and Eagle Ford output only partly offset by continued gains from the Permian Basin. Producers continue to shift efforts from Bakken and Eagle Ford to Permian. Indeed, the Permian is the main onshore basin that is attracting capital, with 63 oil rigs added since mid-May out of a total of 98rigs. Since the start of August, US producers added another 40rigs and had 414 active rigs by early September. Output is also under pressure in the Midwest, where North Dakotan output dropped another 21 kb/d, to 1.02 mb/d, in June to stand 180 kb/d below a year earlier.

Canada Alberta, Newfoundland June actual, others estimated: Official data published by Statistics Canada largely confirm our earlier estimates of Canadian oil production at around 3.5 mb/d during May more than 1 mb/d below the 1Q16 average. Preliminary data from the Albertan Energy Regulator show the provinces oil output, including bitumen and synthetic crude oil, recovered by some 350 kb/d in June, to 2.4 mb/d still 660 kb/d less than volumes achieved at the start of the year. Providing a partial offset however, production from fields offshore Newfoundland fell by 50 kb/d in June on lower volumes from the Terra Nova production facility. For the year as a whole, the Albertan wildfires are estimated to have curbed total Canadian oil production by an average 60 kb/d. Supplies are expected to rebound by 250kb/d in 2017.

Mexico - July actual, August preliminary: Mexicos oil production was confirmed at 2.48 mb/d in July, 25kb/d below June and 130 kb/d lower than the previous year. Preliminary data published by Pemex suggest production slipped marginally in August, indicating the continuation of annual declines of around 130kb/d. For the year as a whole, Mexican oil production is expected to decline by 120 kb/d to 2.48mb/d. In 2017, total output will drop a further 140 kb/d to 2.34 mb/d, of which 2.03 mb/d is crude.

North Sea

North Sea oil production surged in July to its highest level since April 2012, standing 270 kb/d above a year earlier. The 340 kb/d monthly increase was more than double the rise suggested by loading schedules as reported by Reuters, which indicated a 133kb/d monthly increase. The same schedules show loadings eased in August on lower Statfjord, Asgard and Alvheim shipments. Loading programmes for Brent, Forties, Ekofisk and Oseberg (BFOE) suggest that the supply of the four North Sea crude oil grades that underpin the Brent oil benchmark will fall over the August-October period. BFOE output of will average just shy of 800kb/d over the period, down from around 850 kb/d in July.

Norway June actual, July provisional : Preliminary production figures show Norwegian output surging by 320kb/d in July, after maintenance curbed output a month earlier. At 2.14 mb/d, total oil supply reached its highest in more than five years and stood some 180kb/d above a year ago. The Norwegian Petroleum Directorate (NPD) attributed the large increase to many fields producing above expectations and to high output levels at the recently commissioned Goliat field now Norways fourth largest producer. In late August, however, Eni was forced to shut the platform due to a power failure. While power was quickly restored, the field remained shut while investigations were ongoing. Norwegian government officials were reported saying Eni can resume production at Goliat only after it can ensure operational safety. Despite the latest hiccups, the forecast for Norwegian oil output for 2016 and 2017 has been raised by 70kb/d and 60 kb/d respectively on the latest stellar output levels, to 1.94mb/d nextyear.

Norway does more with less

Statoil and partners are bringing down costs at the massive Johan Sverdrup field - the North Sea's largest oil discovery in more than three decades and raising expectations on output. Statoil has cut costs by about 20%, with the first stage of the project estimated at 99 billion Norwegian crowns ($11.96 billion). At the same time, output expectations for the first stage have been raised to 440 kb/d, well above the 315380kb/d initial estimate.

According to Statoil, the break-even price for the whole project is now below $30/bbl - $25/bbl for the first phase with further gains possible. The overall cost of Sverdrup, including the second stage of the development, was lowered to a range of NOK 140 - 170 billion from NOK 170 - 220 billion. When fully developed, the field is expected to pump 660 kb/d.

UK June actual, July preliminary: Total UK oil production eased by 60 kb/d in June to 1.0 mb/d. Output was nevertheless 50 kb/d up on a year ago, contributing to an average annual 1H16 gain of 100kb/d. Preliminary data suggest output recovered slightly during July ahead of maintenance that is expected to curb supplies in August and September. The UKs largest oil field Buzzard - which contributes to the Forties stream, is due to be overhauled during September. UK production is expected to rise for a second consecutive year in 2016, reversing more than a decade of annual declines. Output is forecast to increase by 50 kb/d on average in 2016 to 1.02 mb/d, before declining by 60kb/d in 2017. Steep spending cuts over the past few years and a material decline in drilling rates is likely to cause accelerated slowdown at mature fields providing an offset to new field start-ups.

While the industrys aggressive spending and cost-cutting drive has taken a toll on Norways oil sector, the tide might be about to turn. Statoil said last month it has 30 offshore projects at the planning stage that could trigger NOK 280 billion ($33.8 billion) in new investments. It has managed to cut the average break-even price for these projects to around $40/bbl from $70/bbl in 2013.

Cheaper equipment, simpler concepts and more efficient drilling have allowed offshore operators in Norway to push down development costs by more than 40% in the past two years, according to a study published in August by the Norwegian Petroleum Directorate (NPD).

Investment estimates for the Utgard, Oda, Zidane, Trestakk, Snilehorn, Johan Castberg, Snorre Expansion and Johan Sverdrup Phase 2 projects have fallen from about NOK 270 to 150 billion ($18.1 billion), a ccording to the NPD . Of the eight projects, only the Statoil-operated Utgard field has been given the formal go-ahead.

The biggest part of the cuts is the result of simpler development solutions. For instance, Statoil has opted for a subsea solution rather than a new platform at Snorre, and a FPSO instead of a platform and pipeline development at Johan Castberg. In addition, lower rig rates and simpler well design have pushed down drilling and well costs that normally account for about 30% of the overall development budget. Pipeline and cable spending will also drop because of lower material prices and simpler solutions and modifications, the NPD said.

Statoils priority projects are the Johan Castberg and Askeladd developments in the Barents Sea, the Njord Future revamp in the Norwegian Sea, expansion of the North Sea Snorre facilities, the Troll Future project at the countrys largest gas field, and the second phase of the giant Johan Sverdrup development.


Latin America

Brazil July actual: Total Brazilian crude oil production inched up 20kb/d to a record 2.58mb/d in July, 130kb/d more than a year earlier. According to the ANP, pre-salt production was roughly 1.06mb/d from 65 wells. Brazilian output fell below year-earlier levels during the first four months of the year, as Petrobras carried out extensive maintenance and suffered from unscheduled outages. Since May, output has rebounded (see Brazil bounces back in August OMR) and more is coming.

Petrobras is planning to bring on 29new offshore injection wells during 2H16, compared with 25 during 1H16. Oil from the new wells will start flowing in the coming months as wells are connected to floating production storage and offloading vessels (FPSOs). Following the commissioning of the FPSO Cidade de Saquarema, which started pumping crude from the Lula Central field in July, the FPSO Cidade de Caraguatatuba is currently being installed at the Lapa field. Another FPSO, the Cidade de Marica, installed in the Lula Alto field in February continues to ramp up, with full rates of 150kb/d expected in early 2017. In all, Petrobras plans to bring on four new FPSOs in 2016 and another five units next year, though market intelligence suggest significant delays in the commissioning of several of these units until at least end-year if not to 2018. For instance, the hulls for the two floaters, P-74 and P-76, destined for the Buzio field just arrived in Brazil in August. Integration works are expected to take about a year and the units will likely only be ready towards the end of 2017. The P-66 and P-68 units, planned for the Lula field, have also faced delays and will most likely only be commissioned towards the very end of 2017 or in early 2018.

Total Brazilian oil output, including NGLs, is nevertheless forecast to grow by 85kb/d, to an average 2.6mb/d in 2016, before ramping up by another 290kb/d in 2017 to an average 2.9 mb/d.

The impeachment and removal from office of President Dilma Rousseff on 31 August could accelerate reforms and an industry overhaul. That process has been at a standstill for the past two years after oil prices collapsed and the corruption scandal involving Petrobras, suppliers and government officials was uncovered in 2014. President Michel Temer, who has been sworn in for the remainder of the Presidential term until 1January 2019, is expected to implement more business-friendly policies than the state-led model favoured by the Workers Party since 2003. The Mines and Energy Ministry is planning to return to a schedule of regular bid rounds, after a five-year hiatus. As discussed in the August OMR, Brazil is also moving to change an obligation that Petrobras holds at least a 30% operating stake in all subsalt fields sold under the regime.

Colombia July actual: Colombia produced an average 843 kb/d of crude oil in July, more than 100 kb/d less than a year earlier. Following hefty investment cuts and a priority towards protecting cash flow and capital discipline, state-owned Ecopetrol, which produces more than half of Colombia's oil, is gearing up to intensify exploration and drilling. The company plans to drill 80 more wells before the end of 2016, bringing its total for the year to 105. Ecopetrol cut its capex budget by $1.8 billion earlier this year, to $3$3.4 billion, but has already secured around 85% of its financing for 2016.


China July actual: Chinas oil production continues to sink, with supplies falling by a further 100kb/d in July. At 3.94mb/d, Chinese crude output was 325kb/d below a year earlier and at its lowest since October 2011. Some of Julys loss was due to the precautionary shutdown of offshore oil installations during the passing of Typhoon Nepartak, which caused severe damage and flooding.

After a hiatus in the publication of monthly field level data since mid-2015, China Oil Gas and Petrochemicals (OGP) have released field-level output data for 1H16 and 2015. The data show that Daqing accounted for 40% of CNPCs total 125 kb/d output fall during the first half of this year compared with the same period a year earlier. Sinopecs Shengli made up more than half of its decline, losing 60kb/d. Only CNOOC and other producers reported gains, lifting Chinese production by 20 kb/d y-o-y. According to the data, total Chinese production was 220 kb/d lower than in 1H15.

Middle East

Oman July actual : Omans crude production, excluding condensates, hit a record 910kb/d in July, lifting output 20kb/d above a year ago. Including condensates, production of just over 1mb/d was only a hair shy of a June record. Year-to-date, Omani oil supplies are up an average 28 kb/d compared to the same period a year ago.

In Yemen , meanwhile, the exiled government of President Hadi is making efforts to resume oil and gas production after all oil and gas projects were shut in early 2015 when war broke out. According to the state news agency sabenew.net, production from the Masila oil fields in the Hadramout province has already resumed, with oil delivered to the Aden refinery, which also resumed operations last month. According to statements from the countrys oil minister, Yemen hopes to also resume production from the Shabwa and Marib oilfields, and is said to have contracted with a Saudi firm to rehabilitate the Hadramout oilfields that have resumed production. Yemen produced around 130 kb/d of crude in 2014.

Former Soviet Union

Russia July actual, August provisional : Russian crude and condensate production dropped to the lowest level in more than a year in August, as Exxon and its joint venture partners shut the Sakhalin1field for 22 days of maintenance. At 10.71 mb/d, total crude output was still close to last years level. Novatek and Gazpromneft lifted production by 80 kb/d and 64 kb/d y-o-y, respectively. Lukoil, Russias second largest producer, held supply steady at 1.63 mb/d but recorded annual declines of around 80kb/d, or 4.7%, as its mature fields in Western Siberia continued to drop. Rosneft also held output steady m-o-m. Increased drilling at two of its largest subsidiaries, Yuganskneftegaz and Samotlorneftegaz pushed up output at the mature fields by a respective 50 kb/d and 85 kb/d from a year ago.

Meanwhile, Russian Prime Minister Dmitry Medvedev announced in August that the privatisation of Bashneft had been postponed for an unspecified period of time. The planned sale of the state's stake in Bashneft had been expected to generate at least $5 billion in revenues to help reduce Russia's 2016 budget deficit, which is on pace to exceed the government's 3% target for the year. Numerous reasons were cited for the privatisation postponement, including a proposal to sell a 19.5% state stake in Rosneft before proceeding with the Bashneft sell-off. Without any privatisation revenues from the sale of the Bashneft or Rosneft stakes, the pressure on the Governments Reserve Fund will continue to mount. The Fund is already being drawn down quickly to compensate for lower oil revenues and to maintain spending, and the Fund could be exhausted even before next year when the Ministry of Finance is projecting that reserves will dwindle to zero without a new influx of cash or a change in the government's approach.

The government has several options to funds its budget deficit, including: emitting bonds, reducing expenses, increasing taxation, drawing on the pension reserves, or pursuing further privatisations. An increase in the oil price could lead to the rouble strengthening further, which would not necessarily help the budget. The government might again resort to seek new revenues from the oil and gas sector by imposing higher taxes and postponing the tax manoeuver. Russia's Finance Ministry plans to cut the oil export duty coefficient to 30 percent next year, from 42 percent currently, and to raise the mineral extraction tax (MET) for oil. The Russian government opted this year to postpone its plan to cut the oil export duty while raising the MET, increasing tax burden on the oil sector. According to the finance ministry, the MET will increase again in 2017.

Kazakhstan July actual: Kazakh crude oil production held steady in July at around 1.56 mb/d, some 30kb/d below a year earlier. Output is estimated to have dropped by roughly 100 kb/d in August as planned maintenance at the Tengizchevroil (TCO) oil fields cut CPC export loadings to the lowest in nearly three years. According to Reuters, CPC Blend oil exports were set at around 640 kb/d in August versus shipments of around 780 kb/d in in July.

A zerbaijan July actual: Azeri oil production in July was steady on the previous month, hovering around 870kb/d - including condensates from the Shah Deniz gas field. Output is forecast to fall during 2H16 due to maintenance on the offshore Azeri-Chirag-Guneshli (ACG) platform. The maintenance will affect exports of BTC blend which consists mainly of Azeri Light from ACG - with loadings dropping to 660kb/d in September, the lowest since December. ACG operator BP began a month-long maintenance programme at the deepwater Guneshli platform on 1 September. In the first half of 2016, BTC which also carries Turkmen and Kazakh volumes - exported an average 720 kb/d.

FSU net oil exports:



  • OECD total inventories built by 32.5 mb in July to a fresh record of 3 111 mb. As refinery activities reached a summer peak, crude oil inventories refused to decline until an exceptional storm-related draw hit the US in late August.
  • Refined product markets are still on two tracks , with gasoline starting the journey towards more normal levels, at least in the US, while the diesel overhang appears to have stopped growing in the west as barrels move eastwards.
  • LPG markets are in a glut of their own , with other products, chiefly propane, struggling to find outlets in a globally oversupplied gas liquids market.
  • Chinese implied crude balances showed another strong build in August, after having eased June-July, as customs data showed exceptionally high crude imports.

Latest member countries submission to the IEA is June 2016. EndJuly and endAugust preliminary data for major countries is estimated based on various sources, subject to availability: preliminary submissions, Euroilstock, JODI and national statistics.

OECD inventory position at end-July

OECD total industry oil inventories built by a strong 32.5 mb in July, in line with seasonal trends but almost twice the usual build, according to preliminary data. Total inventory levels of 3 111 mb now sit at yet another record high.

Crude oil stock levels did not follow their usual draw, coinciding with the yearly peak of refinery activity in the OECD between spring and fall maintenance, and instead remained about flat, propped up by the US and Europe, notwithstanding draws in Korea and Japan.

In contrast to crude, products built strongly in all OECD regions - by over 33 mb - exceeding their seasonal norm. The usual dissection of crude versus products gives a misleading picture, as most of the exceptional build belongs to the other products category composed mostly of gas liquids, and chiefly US propane. The build in refined liquid products, namely motor gasoline, middle distillates and fuel oil, amounts to a mere 8 mb out of the total 33 mb, and it is roughly half its seasonal norm.

OECD Americas

Weekly July and August US data, compiled by the Energy Information Administration (EIA), show crude stocks stubbornly defying seasonal trends and refusing to draw, remaining basically unchanged until the end of August. At that point, inventories drew suddenly, by an exceptionally large 14mb in a week, as many ships in the US Gulf were delayed by tropical Storm Hermine. This might be quickly reversed as cargoes unload after weather delays are over. July and August normally see a pronounced draw in the region of 16mb, as Northern hemisphere refiners have not started fall turnarounds yet.

Stocks on the products side, although still growing overall, are moving at different speeds for refined products and gas liquids. On one hand, for both July and August, gasoline draws have been steeper than seasonal, and diesel builds shallower than expected. On the other, the relentless build in propane has not stopped. US NGLs production has proven far more resilient than crude oil, growing by around 300kb/d this year (see Supply ). At the same time propane export could not break above 700kb/d in July-August, dropping to 500kb/d in the latest EIA data due to weak arbitrage conditions. Some butane had reportedly found its way to European blenders, a rather unusual movement, supported by very low freight rates, but this was not enough to relieve the glut.

OECD Asia Oceania

Crude stocks drew in both Japan and Korea in July, as refinery runs rose between spring and fall turnarounds. Notwithstanding this, the draw was counter-seasonal, as imports usually more than offset higher throughputs.

In contrast to crude, refinery products were in line with the normal July patterns, with gasoline drawing and middle/heavy distillates building. The diesel build in OECD Asia Oceania particular stands out as the region reached its highest levels on record, breaking out of its historical range, which suggests the global diesel glut might be moving east.

LPG inventories, included in other products, stand out. Preliminary Japanese and Korean data show LPG stock levels building well ahead of their seasonal fall peak.

OECD Europe

Europe total inventories built in July against seasonal trends, propped up by French crude oil, as deliveries bounced back after strikes blocked refining and port activity (See July Report ). Outside of France, European countries followed the seasonal build in products as refinery activity reached a yearly peak. Overall, products built in line with July averages, but still sit at very high levels. Both middle distillates and gasoline have a whole week of extra cover above their seasonal norms.

Preliminary August data from Euroilstocks show crude drawing together with higher throughputs, and diesel substantially unchanged against a seasonal 9mb build, a tentative sign of relief which would need confirmation from final data.

Recent developments in non-OECD stocks

Chinese commercial crude stocks drew by a strong 5% in July, or 12.6mb, according to official data from ChinaOGP . Implied crude balances, calculated from import data, production and crude processing, however show a build as total refinery runs eased (See Refining ) which albeit slower than in previous months suggests that independent refiners and perhaps strategic stocks are still drawing in crude. August showed a strong rise in deliveries, morethanoffsetting refinery activity, leading again to strong builds, just under 900kb/d. On the product side, Chinese diesel stocks built by nearly 3mb, after four months of draws, while gasoline drew by about 1.5mb, on the back of strong exports (See Demand ).

Saudi crude inventories built slightly in June, according to JODI data, after having drawn consistently by a cumulative 40mb since October 2015, on average 5.7mb per month, in line the Kingdoms strong exports (See OPEC Supply ).

Floating storage

Shortterm floating storage inched up by 2 mb in August to stand at 80.6mb, just a touch above previous year levels. The increase is due to delays in Northwest Europe holding up tonnage carrying North Sea grades. Other regions posted little or no change, notably the Middle East and Asia Pacific, which remained flat on the month, after being the main drivers of July discharges. Economics suggest that storage in those regions is currently held for bottlenecks and delays in the supply chain, rather than deliberate speculative plays.



  • Oil prices rallied in early August, rising from four-month lows near $42/bbl to briefly above $50/bbl amid peak summer demand for crude oil, which is expected to lead to the first quarterly crude stock draw in more than two years. At the time of writing, Brent futures had retreated to around $48.45/bbl while WTI was at $46.35/bbl.

Product prices were stronger in the US and Europe as refinery outages supported gasoline cracks. In the more oversupplied Asian markets, product cracks trended lower.

Freight rates for crude and product carriers fell to deeper lows, as the tanker market remained oversupplied and abundant on-land stocks weighed on liftings.



  • The anaemic outlook for refining throughput extends further amid downward revisions to our 2H16 forecast. Refinery runs in 3Q16 have been cut by 190kb/d since last months Report due to newly announced planned and unplanned outages in the US and Europe.
  • Output in 4Q16 is forecast to rise by 80kb/d year-on-year (y-o-y) at 78.9mb/d following a seasonal decline pattern . More outages were announced for the autumn following already heavy 2Q16 maintenance.
  • Refinery runs in 2016 are forecast to grow at the lowest rate in a decade , excluding the 2008-09 recession, up only 340kb/d y-o-y. This masks a wide discrepancy in OECD/non-OECD trends as the former sees runs reduced by almost 300kb/d after a 1mb/d gain last year, while the latter sees steady growth of 600kb/d - about the same as last year.

Global refinery overview

Finalised June data for the non-OECD and revisions to preliminary OECD data led to another 450kb/d downward revision compared with earlier estimates. Combined with an upward revision for May of 190kb/d, 2Q16 global refinery crude intake is now assessed at 78.3mb/d, down 540kb/d y-o-y.

The 3Q16 throughput estimate is also revised lower by 190kb/d as newly announced maintenance outages in Europe and the US coincide with a temporary slowdown in the Middle East. Still, 3Q16 runs are up by 550kb/d y-o-y.

Forecast growth of only 100 kb/d for 4Q16 shows the lowest annual gain this year due to newly announced maintenance shutdowns. After heavy outages in 2Q16, we had expected lower-than-average autumn maintenance.

Anorexic refining offers slim hope for crude rebalancing

With this Report introducing a forecast for December 2016 refinery throughput, the performance for 2016 can now be analysed in a historical context. Data are actualised through June 2016, with 2H16 almost entirely still a forecast. As it now stands, refinery runs in 2016 are estimated at the lowest growth rate in a decade (excluding the demand-driven declines in the 2008-09 recession).

With the continued decoupling of refined product demand from headline demand growth, refinery runs growth will lag behind total demand growth. However, the gap this year can be explained both by a higher supply of non-refined products (mostly petrochemical feedstocks from NGLs) and a product stock overhang from earlier periods. In both 2014 and 2015, refining output growth exceeded refined product demand growth, resulting in large product stock builds. Some of the build was for operational and logistical purposes, but the discretionary inventory builds are now acting as a real pressure on margins. This, in turn, affects refiners appetite for crude and delays the rebalancing in crude oil markets. With our more pessimistic outlook for 2H16 refining activity and revisions to crude supply, the expected draws in 3Q16 are now lower, while the build in 4Q16 is higher.

For operational purposes, crude stocks should keep building while oil demand grows and refining capacity expands. But a succession of oversized quarterly builds indicates a market in a prolonged glut. Major crude producers such as Russia, Iran, Iraq and Brazil are worsening the crude glut in more than one way. Not only are they increasing crude output, they are also reducing their domestic refinery intake.

The onus is thus on importers to clear the stock overhang. More than half the implied global stock build of 1.6mb/d in 1H16 was absorbed by China, most likely, in its strategic reserves. OECD countries, too, increased crude stocks at a rate of about 200kb/d, while floating storage added another 100-150kb/d (see Stocks ).The remaining 300-400kb/d of stocks could have been easily absorbed by other non-OECD importers or even crude exporters themselves.

To keep building discretionary or even strategic stocks, the price incentive is crucial. This explains why, for more than a year, $50/bbl oil has been such a difficult barrier to break through.


Refining margins in August were firmer in the US and Europe, helped by gasoline cracks, mostly in response to various refinery-related supply issues in the world biggest gasoline market as the peak driving season wraps up. The regional product oversupply led Singapore margins lower month-on-month (m-o-m). In terms of monthly averages, both NWE and Singapore margins are now closer to the lower range of the last five years.

OECD refinery throughput

With finalised June throughput slightly lower than preliminary numbers, 2Q16 OECD runs dipped 500kb/d below year earlier levels, recording its first quarterly decline since the oil price slide. About 400kb/d of declines in the Americas and Europe were only partially offset by OECD Asia Oceania bucking the trend with 320kb/d of annual growth in runs.

July preliminary data for OECD countries came in 250kb/d higher than our forecast, mostly on the basis of fully restored French throughput while we expected a slower post-strike recovery. This helped Europe stay flat y-o-y. The US saw a modest seasonal ramp-up from June to 16.7mb/d, with output dipping 200kb/d below last Julys all-time peak rate. Weekly throughput data for August suggest a flat y-o-y outlook for the US and declines in Canada and Japan. Overall, 3Q16 OECD throughput is revised down by a small 50kb/d, with an annual decline of 420kb/d now forecast.

The 4Q16 forecast is equally bearish as recently added maintenance outages damp the October outlook even further, with Europe especially affected. Total OECD runs in October may turn out at the lowest for the past 2.5 years. Runs in 4Q16 are forecast at 510kb/d down y-o-y, driven by Europes 420kb/d loss.

For 2016 as a whole, an almost flat Americas outlook is combined with a 350kb/d decline in Europe and South-Korean-fuelled growth of 150 kb/d in OECD Asia. European refiners are resuming permanent capacity closures. One French refinery is expected to be shut down, while two others, in the UK and the Netherlands, will see a partial CDU capacity reduction.

Non-OECD refinery throughput

Only 80% of June throughput numbers for the non-OECD are actualised, with refinery runs still estimated for the rest of the year. But this still allows for some confidence in the observation that 2Q16 might have either come out flat y-o-y or seen the first quarterly y-o-y decline (however small, at just 30kb/d) in the non- OECD in the past five years. The biggest losses, all coming from crude exporters Brazil, Venezuela, Russia and Iran were not fully offset by robust gains in big oil importers China and India. In terms of forecasts, non-OECD refiners are expected to lift runs by 1mb/d and 600kb/d in 3Q16 and 4Q16 respectively, with 2016 average annual growth coming in at 600kb/d, about the same rate as 2015.

July actuals for Chinese throughput came in only a marginal 40kb/d below our forecast, dropping 300kb/d from June, but 420 kb/d up y-o-y at 10.67mb/d. August runs are expected to have rebounded to 10.8mb/d, with runs ramping up further November-December. PetroChina recently stated that it expects a 2.2% annual decline in 2016 refining activity, indicating that drops seen earlier this year are going to persist for the rest of 2016. Most of the expected 340 kb/d annual gains in China for the August-December period will come from independent refiners.

Indian runs touched the 5mb/d mark again in July, some 65kb/d higher than our forecast. This marked a massive 600kb/d gain y-o-y. The rest of 3Q16 is expected to have slowed marginally. The fourth quarter may see monthly output firmly crossing the 5mb/d threshold. Indian gains for 2016 as a whole are now expected at a slightly faster rate than China - at about 370kb/d. Elsewhere in Asia, our estimate of Indonesian refinery runs has been revised down historically based on recent reports of even lower utilisation rates at Pertaminas plants.

Russias August throughput surprised again, ramping up from July and crossing the 5.8mb/d mark for the first time this year. Russia now prefers domestic processing. That is because differentials for Urals crude are under pressure due to higher output of Urals, competition in northwest Europe from relatively robust North Sea output and in the Mediterranean from more aggressive marketing by Middle East exporters, combined with Europes waning appetite for crude oil. This has, in turn, affected Russian oil companies crude export earnings. Still, Russian refining activity registered a y-o-y slowdown of close to 100kb/d. September throughput is expected to dip 400kb/d from August due to seasonal maintenance. Runs in 4Q16 are forecast at 170kb/d lower y-o-y, slowing seasonally from 5.7 mb/d in 3Q16 to 5.4mb/d.

Brazil slowed down further in July, posting refinery throughput of 1.85mb/d, some 100kb/d below our forecast. The pre-Olympics month did not provide a visible boost to runs, and indeed, Petrobras was reported to have exported more diesel cargoes towards Europe - a symbolic reversal of a previously established flow. Local demand is struggling, while refinery upgrades have boosted diesel output. Refinery throughput is forecast to firm up at the end of the year, but 2016 will still carry an annual loss of 100kb/d.

In the Middle East, Saudi Arabias throughput in June actualised at 120kb/d below our forecast, staying under 2.4mb/d. Runs are estimated to have picked up in 3Q16 towards 2.6mb/d, but reported maintenance in 4Q16 sees another slowdown to 2.3mb/d. With both Iran and Iraq expected to see y-o-y declines in 2H16, the only other country increasing runs in the Middle East is the UAE. The rest are close to flat.