Oil Market Report: 14 June 2017

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  • Recent weaknesses in demand growth are likely to prove transitory, particularly in post currency-reform India. Although global growth was only 0.9 mb/d in 1Q17, it accelerates in 2H17 and for the year as a whole our outlook remains unchanged at 1.3 mb/d. In 2018, growth increases modestly to 1.4 mb/d as demand reaches a record 99.3 mb/d.
  • Global oil supply rose by 585 kb/d in May to 96.69 mb/d as both OPEC and non-OPEC countries produced more. Output stood 1.25 mb/d above a year ago, the highest annual increase since February 2016. Gains were dominated by non-OPEC, particularly the US.
  • OPEC crude output rose by 290 kb/d in May to 32.08 mb/d, the highest level so far this year, after comebacks in Libya and Nigeria, which are exempt from supply cuts. Output from members bound by the production deal edged lower, which kept year-to-date compliance strong at 96%.
  • OECD commercial stocks rose in April by 18.6 mb (620 kb/d) on higher refinery output and imports. They stand 292 mb above the five-year average and are higher than when OPEC decided to cut output. For May, preliminary data suggests stocks falling in Fujairah, Japan, Europe, Singapore and in vessels offshore, but rising in the US and China.
  • Benchmark crude oil prices fell after 23 May, reflecting lower expectations about the pace of global market rebalancing. At publication time, crude prices are close to the levels when the OPEC output deal was announced. Fuel oil prices and cracks were boosted as stocks fell to their lowest level in two years due to tight supplies of sour crudes. Gasoline and naphtha prices fell.
  • Record high US refinery throughput in April and May led to upward revisions to our 2Q17 and 3Q17 forecasts. Global refinery intake is projected to reach 80 mb/d in 2Q17 and 81.3 mb/d in 3Q17, up by about 1.1 mb/d y-o-y in each quarter. In 3Q17, throughput growth is driven by the US and China in the East.

Whatever it takes

In this Report, we publish our first look at what 2018 might have in store. This is timely in view of the recent extension until March of the output cuts. However, such is the volatile nature of the market today, with recent tensions in the Gulf adding to the mix, 2018 seems a long way away. Immediate concerns about stubbornly high stocks due to rising global production are pressuring oil prices, which have fallen to levels not seen since the OPEC ministerial meeting at the end of November.

In April, total OECD stocks increased by more than the seasonal norm. For the year-to-date, they have actually grown by 360 kb/d. Our provisional monthly data for May suggests that OECD stocks might, overall, be little changed, but recent US weekly data suggests that rising domestic production, high imports, low exports, and weaker gasoline demand, have combined to send stocks there higher. In last month's Report, the implied market deficit in 2Q17 was 0.7 mb/d but now this has narrowed to 0.5 mb/d. The reasons for this are a reduction in demand growth, mainly because of weaker Chinese and European data, and an increase in global supply. Based on our current numbers, assuming stable OPEC production, market deficits should be significant in 2H17, although adverse changes to demand and supply data can erode prospective stock draws.

In the meantime, as always these days, the focus is on US production, which, as anticipated in our earlier forecasts, is rising strongly. For 2017, we expect US crude supply to grow by 430 kb/d and the year will end with production there 920 kb/d higher than at the end of 2016. Our first look at 2018 suggests that US crude production will grow year-on-year by 780 kb/d, but such is the dynamism of this extraordinary, very diverse industry it is possible that growth will be faster. For total non-OPEC production, we expect production to grow by 0.7 mb/d this year but our first outlook for 2018 makes sobering reading for those producers looking to restrain supply. In 2018, we expect non-OPEC production to grow by 1.5 mb/d, which is slightly more than the expected increase in global demand.

Back to today; while OPEC countries collectively have broadly implemented their cuts, some members have been less than wholly diligent. Iraq has achieved a compliance rate of only 55% so far this year, and Venezuela and the UAE are also laggards. Meanwhile, two OPEC members not included in the deal have recently seen increases in production: Libya's output has reached nearly 800 kb/d, a level not seen since 2014, and Nigeria has announced the lifting of force majeure for Forcados exports, potentially making available to the market more than 200 kb/d. By the nature of these two countries, production could easily fall back; indeed, in Nigeria the very recent announcement of force majeure for Bonny Light liftings is an example. However, if Libya and Nigeria continue to grow their output these extra barrels dilute the value of OPEC's output accord and contribute to delaying the re-balancing of the market.

The currency used to express re-balancing is the five-year average level of oil stocks. In this report, we show that OECD stocks are currently 292 mb above this level. Indeed, based on our current outlook for 2017 and 2018, incorporating the scenario that OPEC countries continue to comply with their output agreement, stocks might not fall to the desired level until close to the expiry of the agreement in March 2018. A lot can change of course, but, as we said at the start, 2018 seems a very long way away.

We have regularly counselled that patience is required on the part of those looking for the re-balancing of the oil market, and new data leads us to repeat the message in this Report. "Whatever it takes" might be the mantra, but the current form of "whatever" is not having as quick an impact as expected.



  • This month's Report includes, for the first time, a comprehensive oil demand forecast for 2018, which shows global growth accelerating modestly to 1.4 mb/d, after a gain of 1.3 mb/d in 2017. Demand averages 97.84 mb/d in 2017, rising to 99.27 mb/d in 2018 and breaching the psychologically important 100 mb/d threshold in 4Q18.
  • Non-OECD economies account for almost all of the forecast growth in 2018 and 94% of the anticipated 2017 increase, with China and India driving the expansion. The strength of non-OECD demand growth is due to a combination of robust macroeconomic conditions, demographic factors and lower existing base levels of per-capita demand.
  • Despite the relatively robust overall demand forecast, the latest numbers (i.e. for March and April) show a net-downward revision compared to last month's Report. Weaker March numbers were seen in Japan, Korea, the UK, Turkey and Spain, while significantly lower April numbers emerged for China, France, Italy, Spain and Germany. Such adjustments, coupled with the prolonged after-effects of India's currency reform, saw global year-on-year (y-o-y) demand growth ease back to a ten-quarter low of 900 kb/d in 1Q17.
  • The mixed recent Middle Eastern oil demand story remains in place, with strong gains seen in Iran, Iraq and Kuwait while economically hamstrung Saudi Arabia continues to lag behind. Furthermore, after a relatively robust recent Qatari demand trend, March data were pulled down sharply due to a steep drop in middle distillate demand. Qatar's weakness even occurred before the recent political turmoil.



  • Global oil supply rose by 585 kb/d in May to 96.69 mb/d after both OPEC and non-OPEC produced more. Output stood 1.25 mb/d above a year ago, the highest annual increase since February 2016. Annual gains were dominated by non-OPEC.
  • OPEC and non-members led by Russia agreed on 25 May to extend a 1.8 mb/d supply cut through 1Q18. Equatorial Guinea chose to join OPEC with immediate effect. It will be included in the OPEC output assessment starting in our July Report. Indonesia asked OPEC on 5 June to reactivate its membership, but requested that it be spared from the group's supply cut.

  • OPEC crude oil output rose by 290 kb/d in May to 32.08 mb/d, the highest level so far this year, after comebacks in Libya and Nigeria, which are exempt from supply cuts. Output from members bound by the production deal edged lower, which kept year-to-date compliance strong at 96%. Compared to May 2016, OPEC crude production was down 65 kb/d.
  • A decision by Saudi Arabia, the UAE and Egypt to cut ties with Qatar is causing logistical headaches for lifters of Qatari oil and LNG. Qatar is the world's largest exporter of LNG and OPEC's second biggest producer of condensates and NGLs after Saudi Arabia. Kuwait's oil minister said the crisis was unlikely to affect OPEC's supply deal.
  • Non-OPEC output is seen rising by 660 kb/d this year, a slight upward revision from last month's Report. In 2018, growth will accelerate to 1.5 mb/d, driven by strong US crude production and further gains from Brazil and Canada. The UK, Kazakhstan, Ghana and Congo will also see higher production next year, while continued declines are expected from Mexico and China. 
  • Non-OPEC oil output rose 295 kb/d in May as a seasonal increase in global biofuels production and higher US supplies outpaced declines from other sources. Compliance with agreed output cuts by 11 non-OPEC countries improved in May, to 83% from 70% a month earlier.
  • The forecast for total US oil production in 2017 has been revised up by 90 kb/d to 13.1 mb/d, following further rig additions and increased spending by producers. US crude oil output is expected to rise by 430 kb/d while NGLs production adds an additional 190 kb/d. Growth accelerates through 2018, to average 1 mb/d, of which crude oil accounts for more than 75%. 

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



  • OECD industry stocks rose in April by 18.6 mb to 3 045 mb on higher refinery output and imports. They remain higher than at the end of 2016 and stood 292 mb above the five-year average.
  • Fuel oil stocks in the OECD hit their lowest level in more than two years with lower Russian output and as refiners switched to lighter crudes that yield more light and middle distillates.
  • Preliminary data show oil stocks falling in Europe, Japan, Singapore and Fujairah in May, but rising in the US and China. Floating storage has fallen further to its lowest since December 2014.



  • Benchmark crude prices fell by $1.50-2.50/bbl on average in May. They decreased more steeply from 23 May onwards, reflecting lower expectations about the pace of a global market rebalancing.
  • Money managers built net long positions by 136 mb to reach 520 mb at the end of May, but this has not impacted outright oil prices. Net long positions fell in early June.
  • Continuing tight supplies of sour crudes amid OPEC's output cuts boosted fuel oil prices. Gasoline and naphtha prices both fell on the month.



  • Our estimate for 1Q17 global refinery throughput is revised up 0.2 mb/d to 80.3 mb/d, compared to last month's Report, up 0.4 mb/d year-on-year (y-o-y) on stronger finalised numbers in several non-OECD countries.
  • In 2Q17, global refinery intake is expected to decline seasonally by 0.25 mb/d to 80 mb/d, up 1.2 mb/d y-o-y. Throughputs have been revised up by 0.4 mb/d on robust Atlantic Basin performance in April and May.
  • Refinery crude runs are forecast to reach 81.3 mb/d in 3Q17, up by 1.3 mb/d from 2Q17, and higher by 1.1 mb/d than the year-earlier level.