Oil Market Report: 15 March 2017

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  • Having expanded by 1.6 mb/d in 2016, global oil product demand growth is expected to ease back to 1.4 mb/d in 2017. Early indicators of 1Q17 demand support this, with slowdowns seen in January in Japan, Germany, Korea and India.
  • Global oil supplies rose 260 kb/d in February as OPEC and non-OPEC producers pumped more. At 96.52 mb/d, world oil production stood 170 kb/d below a year ago. OPEC posted a year-on-year decline for the second month running. In 2017 non-OPEC output is set to rise 0.4 mb/d to 58.1 mb/d.
  • OPEC crude output rose by 170 kb/d in February to 32 mb/d, putting compliance with the group's supply cut at 91% for the month. Saudi Arabia raised output by 180 kb/d month-on-month, but flows remained below its agreed target.
  • OECD commercial inventories rose in January for the first time in six months by 48 mb, or 1.5 mb/d, to 3 030 mb, underpinned by near-record US crude stocks and gains in Europe. Preliminary data show a modest draw of 5 mb in February despite further builds in US crude.
  • Benchmark crude prices moved in a tight range of $55-56/bbl through February, before falling more than $3/bbl on 8-9 March. Sour crude Dubai maintained the gains achieved against Brent in recent months, while middle distillates and gasoline prices rose in most regions.
  • Refinery throughput growth recovered to 0.9 mb/d y-o-y in 4Q16, but will slow down to a 0.6 mb/d increase in 1Q17, before surging by 1.9 mb/d in 2Q17. This reflects a recovery from 2Q16's unusually low levels, with implied refined product stock drawdowns supporting higher throughput.

Taking stock

The price of oil has been stuck in a narrow range since the conclusion in mid-December of the OPEC/non-OPEC production accords. The thinking was that a floor had been put under prices, at an unspoken level of $50/bbl, so producers were probably comforted by the fact that Brent crude oil barely moved much below or above $55/bbl. Until 7 March, that is. The sudden move downwards saw prices return to almost exactly the same level as on 30 November - just below $52/bbl for Brent - when the OPEC deal was announced. The main trigger for the recent fall was mainly US-centred, caused by yet another build in crude oil stocks reported in preliminary weekly data from the Energy Information Administration (EIA).

The stock build should not, however, be much of a surprise. Prior to the Vienna agreement production from OPEC countries was increasing relentlessly; from September to November inclusive output surged by an estimated 580 kb/d. Export volumes are still appearing in storage around the world and, as part of this, US stocks are building. The US is seeing a triple surge in supply: rising imports (exports are also growing), rising domestic production and falling refinery utilisation.  For crude imports, volumes so far this year are close to 400 kb/d higher than a year ago; US crude oil production has increased by 400 kb/d since September; and refinery runs fell from 17 mb/d at the start of the year to only 15.5 mb/d at the beginning of March. It is hardly surprising, therefore, that we have a big backlog of unabsorbed crude oil.

Broadening the picture, new data for total OECD oil stocks confirms the legacy of higher production last year. Stocks started falling in August from record high levels and by end-December were 120 mb lower, an average decline of nearly 800 kb/d. However, in January we saw an abrupt about turn with OECD stocks increasing by 48 mb (1.5 mb/d) and preliminary data for February suggests they have fallen back again only modestly.

So, the market is still dealing with a vast amount of past supply, which will take time to work its way through the system. Meanwhile, demand growth has not provided any further encouragement after three consecutive months when we upgraded our estimates. Our annual outlook for 2017 remains unchanged with demand expected to grow by a healthy 1.4 mb/d, although within the annual average we revised down our 1Q17 growth forecast by 0.3 mb/d and revised up our 4Q17 forecast by the same amount.

Beyond the nervousness about this legacy supply and concerns about rising production today from some non-OPEC countries; the implementation of the OPEC production agreement appears in February to have maintained the solid start seen in January. For the first two months of the deal the compliance rate averaged 98%, although the figure is very heavily influenced by Saudi Arabia whose rate was considerably higher at 135%. For the eleven non-OPEC countries that are pledged to cut 558 kb/d of production, there is, as yet, far less data visibility. Russia, which makes up more than half the total non-OPEC reduction, has consistently said that its cut would be gradual, and this is also the case for some other countries. Provisionally, we estimate that the non-OPEC countries have cut production by 37% of their commitment in the first two months of the year.

The market needs time for the full impact of the big supply cuts under the output reduction agreements to be felt. We do not predict OPEC production per se, but if current production levels were maintained to June when the output deal expires, there is an implied market deficit of 0.5 mb/d for 1H17, assuming, of course, nothing changes elsewhere in supply and demand. For those looking for a re-balancing of the oil market the message is that they should be patient, and hold their nerve. In the meantime, the volatility that suddenly broke out last week will probably recur, as the IEA has regularly warned.



  • Having expanded by 1.6 mb/d in 2016, global oil product demand growth is forecast to decelerate to 1.4 mb/d in 2017, easing back as the heavy price declines of 2016 are not replicated in the current forward curve. Brent crude oil prices fell by one-sixth in 2016.
  • The latest monthly data contained a number of notable changes. Official December releases for the US surprised to the upside, showing demand 0.5 mb/d higher than implied by the weekly data, while both Japanese and UK data came in lower than expected. Similarly, in January much stronger than anticipated demand occurred in Russia and France, whereas Germany, Japan, India and Korea were unexpectedly on the downside.
  • Indian oil demand fell sharply in January, the contraction itself not being a shock - as the recent currency reform was bound to negatively impact on demand - but rather its scale. Demand contracted by 130 kb/d year-on-year (y-o-y) in January, a dramatic about-face from the previous six-month trend when demand grew by 235 kb/d.
  • Sizeable baseline data revisions for 4Q16 have delayed the potential return of Japanese demand growth. Downside adjustments to 4Q16 Japanese LPG data led the way, with LPG demand growth now reported to be half that previously cited.
  • The recent acceleration in Russian demand growth, which commenced mid-2016, continues to gather pace. Pulled up by sharp gains in industrial fuel use, y-o-y oil demand growth rose to a 10-month high of 0.3 mb/d in January.



  • Global oil supplies rose 260 kb/d in February as OPEC and non-OPEC producers pumped more. At 96.52 mb/d, world oil production stood 170 kb/d below a year ago. After nearly two years of annual output gains, OPEC posted a year-on-year decline for the second month running.
  • OPEC crude output rose by 170 kb/d in February to 32 mb/d, with compliance with the group's supply cut easing to 91% from an upwardly revised 105% in January. Saudi Arabia raised output by 180 kb/d month-on-month (m-o-m), but flows remained below its agreed target.
  • At 32.3 mb/d, the call on OPEC crude during 1Q17 is higher than average output of 31.9 mb/d so far this year, which could lead to a draw in global inventories. The call rises by 400 kb/d to 32.7 mb/d in 2Q17. It is unclear at this stage whether OPEC will extend its six-month supply pact to the end of the year.
  • Non-OPEC oil production increased by 90 kb/d in February, to 57.8 mb/d, largely due to higher US output. Estimates for both 2016 and 2017 remain largely unchanged from last month's Report, with total non-OPEC liquids output seen rising 0.4 mb/d in 2017 to average 58.1 mb/d.
  • Compliance from the 11 non-OPEC countries that pledged to cut output by a combined 558 kb/d is assessed at 40% in January. With little information on production levels for February available at the time of writing, the group's output was seen slightly higher following rising output from Kazakhstan and Sudan/South Sudan and with Russian production essentially unchanged.

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



  • OECD industry inventories rose for the first time in six months by a sizeable 48 mb (or 1.5 mb/d) to reach 3 030 mb at end-January, underpinned by near-record US crude stocks and gains in Europe.
  • The increase, caused by higher imports from cargoes in transit through 4Q16, was enough to trigger a more than $3/bbl fall in the front-month Brent price on 8-9 March.
  • Preliminary data show oil stocks in the OECD drawing by a modest 5 mb in February, highlighting that market re-balancing is gradual rather than rapid.



  • Benchmark crude prices moved in a tight range of $55-56/bbl through February, before bulging crude inventories in the US pushed them down more than $3/bbl on 8-9 March.
  • Sour crude Dubai maintained most of the gains achieved against Brent and WTI in recent months, thanks to OPEC output cuts. The price of alternatives to Libyan grades gained in the Mediterranean as fighting erupted once again.
  • Middle distillate and gasoline prices benefitted from strong support in February, but fuel oil fell after several months of high prices due to steady inflows into Asia.
  • Spot freight rates for dirty and clean tankers fell across the board in February due to the ongoing impact of OPEC output cuts and with closed arbitrage opportunities in several product markets.



  • Global refinery crude throughput rose 860 kb/d year-on-year (y-o-y) in 4Q16 to 79.5 mb/d, only 280 kb/d lower than in 3Q16. Following gains of 1.6 mb/d in 2015, runs increased 440 kb/d last year. This is well below the observed demand growth in 2016 of 1.6 mb/d.
  • Our forecast for 1Q17 runs is at 79.9 mb/d, reflecting a more modest annual growth of 630 kb/d as 1Q16 throughput was at relatively high levels. Throughput gains 410 kb/d from 4Q16.
  • Our forecast for 2Q17 implies massive annual growth of 1.9 mb/d with runs reaching 80.1 mb/d, the highest on record, as implied product stocks drawdowns support higher throughput.