Oil Market Report: 13 July 2017

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  • Global oil supply rose by 720 kb/d in June to 97.46 mb/d as producers opened the taps. Output stood 1.2 mb/d above a year ago with non-OPEC firmly back in growth mode. Non-OPEC production is expected to expand by 0.7 mb/d in 2017 and 1.4 mb/d in 2018.
  • OPEC crude output rose by 340 kb/d in June to 32.6 mb/d after Saudi flows increased and Libya and Nigeria, spared from cuts, pumped at stronger rates. OPEC compliance slumped to 78%, the lowest rate this year, and was overtaken by the non-OPEC group whose rate improved to 82%.
  • For global demand, after lacklustre 1.0 mb/d growth in 1Q17, there was a dramatic acceleration in 2Q17 to 1.5 mb/d. For 2017 as a whole, demand is forecast to reach 98.0 mb/d, with growth revised up by 0.1 mb/d compared to last month's Report to 1.4 mb/d. Further growth of 1.4 mb/d is foreseen for 2018, with global demand reaching 99.4 mb/d.
  • OECD industry stocks fell in May by 6 mb on lower imports of crude and products. Stocks are now 266 mb above the five-year average, down from 300 mb in April. Preliminary data show a moderate reduction in OECD stocks for June.
  • Benchmark crude oil prices fell by $3-4/bbl on average in June and remain close to their level when the OPEC output deal was announced. Sour crudes such as Dubai, Maya and Urals were all boosted by tight supplies.
  • Global refinery throughput is forecast to reach a record high of 81 mb/d in 3Q17, up 0.8 mb/d from 2Q17 levels.  The US contributes half of the 3Q17 build. Refinery runs will decline seasonally by 1.5 mb/d from the peak August level to October.

Waning confidence

Oil investors are going through a period of waning confidence with prices recently returning to levels not seen since early November. Brent prices have closed below $50/bbl each day since early June and few investors expect a recovery anytime soon. Money managers slashed net long positions in Brent and WTI crude futures by more than 200 mb between end-May and end-June, to 312 mb. This was the lowest net long position recorded since January 2016 and June was the fourth straight month of falls in net long positions since a record bullish position was achieved in February in the euphoria following the output agreements. The widespread interpretation of this is that investors believe, perhaps impatiently, that oil market re-balancing is taking too long with some calling for additional action by producers to speed up the process.

Each month something seems to come along to raise doubts about the pace of the re-balancing process. This month, there are two hitches: a dramatic recovery in oil production from Libya and Nigeria and a lower rate of compliance by OPEC with its own output agreement.

In the past few months, Libya and Nigeria have seen their combined output increase by more than 700 kb/d. For fellow OPEC members, who agreed to reduce production by 1.2 mb/d, to see their cut effectively diluted by nearly two-thirds must be very frustrating, especially as their pact has, hitherto, been well observed by historical standards.

The second internal issue for OPEC is that its rate of compliance now appears to be slipping. Data is subject to revision, but our current view is that compliance slipped to 78% in June from 95% in May. While the top producer, Saudi Arabia, continues to deliver on its promise to cut output, several other producers have not so far fulfilled their commitments. However, the output agreement runs until March 2018, and success is judged over the whole period rather than in one month. It is OPEC's business to manage its output and we must wait and see if the changing supply picture from the group as a whole forces an adjustment to the current arrangements. In passing, it is worth noting that compliance from the ten non-OPEC producers who volunteered to cut production improved to 82% in June, higher than the rate achieved by OPEC.

The recent price weakness may lead the US shale patch to reassess its prospects. Financial data suggests that while output might be gushing, profits are not and recent press reports quoted leading company executives saying that oil prices need to be around $50/bbl to maintain production growth. WTI values have not been consistently above that level since late April. Meanwhile, we saw a record twenty-three consecutive weeks of rising drilling activity grind to a halt, although modest growth has resumed. Such is the resilience of the US shale sector that we should be careful to pronounce that its expansion will slow, however it could be that the recent exuberance is being reined in. For now, we have left unchanged our view on US production and, for that matter, on the prospects for non-OPEC production as a whole.

Meanwhile, preliminary indications suggest that global demand growth, after falling to a three-year low of 1.0 mb/d in 1Q17, rebounded to 1.5 mb/d in 2Q17, with strong year-on-year data for the OECD countries as well as in developing economies. Taking demand and supply together, the current market balance implies a global stock draw of 0.7 mb/d in 2Q17. For now, actual stocks numbers do not support this picture but, at the time of writing, data for the quarter remains incomplete and, in any event, numbers for previous months can be revised. Thus, we need to wait a little longer to confirm if the process of re-balancing has actually started in 2Q17 and if the waning confidence shown by investors is justified or not.



  • The 2017 global demand forecast has been revised up by 0.1 mb/d compared to last month's Report, supported by robust preliminary numbers. We now envisage demand growth of approximately 1.4 mb/d in 2017 (or 1.5%), as global demand averages 98.0 mb/d.
  • A similarly paced expansion is foreseen in 2018, to 99.4 mb/d, as accelerating non-OECD growth offsets potential price and efficiency-driven slowdowns in the OECD.
  • Having eased to a two-and-a-half year low of 1.0 mb/d (1.0%) in 1Q17, preliminary estimates of year-on-year (y-o-y) global oil demand growth rebounded strongly in 2Q17, to 1.5 mb/d (1.6%). OECD demand growth in particular out-performed earlier expectations, with Germany and the US the main upside surprises.
  • The latest US data are supportive, showing demand growth of 265 kb/d in April. After a weak start to the year, gasoline demand growth is recoupling with road transportation demand and was +35 kb/d y-o-y in April. US gasoil demand fell by 365 kb/d vs. March, but the drop is mainly weather related and distillate demand is benefitting from improving manufacturing production and increased freight transportation.
  • German oil consumption rose by 280 kb/d y-o-y in May, supported by a jump of 220 kb/d in gasoil demand. Consumers may have taken the opportunity of relatively low prices to store heating oil ahead of the winter heating season. Diesel demand, nevertheless, rose by 115 kb/d y-o-y and accounted for more than half of gasoil demand growth.
  • Our estimate of Chinese apparent demand rebounded strongly in May, having edged into negative y-o-y growth in April, supported by resurgent refinery activity and falling diesel exports. Given the uncertain economic outlook, we are reluctant to amend significantly the Chinese growth forecast at 375 kb/d (3.1%) in 2017 and 350 kb/d (2.8%) for 2018.
  • The recovery in demand growth in India continued into May, with a fourth consecutive month of higher (or at least, less negative in February and March) y-o-y growth. Heightened road transport and LPG demand led the uptick, more than offsetting continued weaknesses in naphtha, jet/kerosene and residual fuel oil.



  • Global oil supply rose by 720 kb/d in June to 97.46 mb/d as producers opened the taps. Output stood 1.2 mb/d above a year ago with non-OPEC firmly back in growth mode.
  • OPEC crude output rose by 340 kb/d in June to 32.6 mb/d, the highest level in 2017, after Saudi flows increased and Libya and Nigeria, spared from supply cuts, pumped at stronger rates. Higher output from members bound by the production pact knocked compliance to 78% in June, the lowest rate during the first six months of the agreement.
  • The substantial recovery in Libya and Nigeria diluted OPEC's actual supply cut of 920 kb/d in June to just 470 kb/d. If Libya can sustain still higher flows during July and Nigeria posts even a slight improvement, OPEC's cut could be eroded to less than 300 kb/d (see Libya, Nigeria comeback dilutes OPEC cut).
  • The call on OPEC crude is forecast to rise steadily through 2017 and reach 33.6 mb/d during the final quarter of this year, up 1 mb/d on June output. Provided there is strong compliance with OPEC's cuts, that would imply a hefty stock draw, even if Libya and Nigeria recover further.
  • Non-OPEC supply rose by 380 kb/d in June on seasonally higher biofuels output and as Canadian oil production recovered after outages. At 58 mb/d, non-OPEC supply was 1.3 mb/d above a year earlier, with gains stemming primarily from the US and Canada, but with significant contributions also from Brazil and Kazakhstan.
  • Compliance with agreed non-OPEC output curbs improved to 82% in June, overtaking compliance from OPEC for the first time since the cut took effect in January. Over the first six months of output cuts, compliance for the group of ten, now excluding Equatorial Guinea who joined OPEC from 1 June, has averaged 61%.
  • Non-OPEC supply is seen expanding by 0.7 mb/d in 2017 and 1.4 mb/d next year, largely unchanged from last month's Report. Growth will primarily come from the US, which is forecast to expand by 610 kb/d and 1 045 kb/d over 2017 and 2018, respectively. Other notable gains come from Brazil, Canada and Kazakhstan, while Mexico and China are expected to see the largest declines.

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



  • OECD industry stocks fell in May by 6 mb to 3 047 mb on lower imports of crude and oil products. Versus the five-year average, the OECD stock surpluses fell by a steep 33.8 mb.
  • OECD government stocks decreased by 3.7 mb in May to 1 593 mb as the US Department of Energy continued to auction crude from the Strategic Petroleum Reserve (SPR).
  • Preliminary data point to a further fall of 6.8 mb in OECD inventories in June and a lower surplus against the five-year average metric. Stocks fell in all three OECD regions during the month.
  • Crude in transit volumes dropped in 1H17 as the OPEC output deal impacted exports, more than offsetting a short-term build in floating storage seen in May and June.



  • Benchmark crude prices fell by $3-4/bbl on average in June caused by strong activity in the US LTO sector and higher production from Libya and Nigeria, which are not covered by the OPEC agreement.
  • Money managers slashed net long positions held in crude futures to their lowest since January 2016. They held 1.8 long positions for every short in late June, well below the long-run average.
  • Sour crudes such as Dubai, Maya and Urals remained boosted by tight supplies and strong fuel oil cracks. Asian demand supported gasoil and fuel oil prices, but naphtha prices fell.



  • Estimate for 2Q17 refinery throughput is revised up by 0.3 mb/d to 80.3 mb/d, up 1.5 mb/d year-on-year (y-o-y), supported by higher April actual data for the Middle East.
  • For 3Q17, the throughput forecast is lowered by 0.3 mb/d to just above 81 mb/d, on continued problems in Latin America and a less optimistic outlook for China. Throughput is about 0.8 mb/d above both the year earlier and 2Q17 levels. With unplanned refinery shutdowns in Europe and Mexico in July, the annual peak throughput month is shifted to August.
  • Our first forecast for October 2017 sees runs falling seasonally by 1.5 mb/d from their peak in August, to 79.9 mb/d. Throughput stands at 1.5 mb/d above a year-earlier, with growth shared proportionately between OECD and non-OECD regions.