Oil Market Report

Data, forecasts and analysis on the global oil market

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The IEA Oil Market Report (OMR) is one of the world's most authoritative and timely sources of data, forecasts and analysis on the global oil market – including detailed statistics and commentary on oil supply, demand, inventories, prices and refining activity, as well as oil trade for IEA and selected non-IEA countries.

Oil Market Report: 15 March 2019

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  • Global oil demand growth slowed sharply in 4Q18 to 0.95 mb/d due to lower OECD demand, which declined by 0.3 mb/d year-on-year. Large falls were seen in Europe and Asia and there was slower growth in the Americas.
  • Our global growth estimate for 2018 and our forecast for 2019 are nevertheless unchanged, at 1.3 mb/d and 1.4 mb/d, respectively, supported by solid non-OECD growth. Data for parts of the Middle East and Asia have been revised upwards.
  • Global oil production fell by 340 kb/d in February as OPEC and non-OPEC cuts deepened. Output of 99.7 mb/d was still up a hefty 1.5 mb/d on a year ago, led by non-OPEC and the US. Non-OPEC growth will slow from 2018's record 2.8 mb/d to 1.8 mb/d in 2019.
  • OPEC crude oil production in February dropped by 240 kb/d, to 30.68 mb/d, on losses in Venezuela and lower output from Saudi Arabia and Iraq. Outperformance by Saudi Arabia and its Gulf allies with supply cuts pushed OPEC compliance to 94%.
  • Global refining throughput returned to growth, with 1Q19 expected to be up 0.8 mb/d y-o-y. China accounts for over 90% of the increase, while weaker performance in other regions supported product cracks, resulting in the first gains in refinery margins since November. 
  • OECD commercial oil stocks rose 8.6 mb on the month in January to their highest level since November 2017. However, the increase was lower than the seasonal norm. Preliminary data for February points to a sharp drop in inventories.
  • Brent futures reached a four-month high above $67/bbl, in mid-March on reduced production from OPEC. Tighter medium-heavy supplies boosted crudes such as Mars and Dalia and sent the Brent-Dubai EFS to a nine-year low.

Supply cushion insures against losses

The electricity crisis in Venezuela has paralysed most of the country for significant periods of time. Although there are signs that the situation is improving, the degradation of the power system is such that we cannot be sure if the fixes are durable. Until recently, Venezuela's oil production had stabilised at around 1.2 mb/d. During the past week, industry operations were seriously disrupted and ongoing losses on a significant scale could present a challenge to the market. As it happens, 1.2 mb/d is also the size of the output cuts agreed by OPEC countries and some non-OPEC producers. The cuts were implemented in January and compliance by OPEC reached 94% in February, with Saudi Arabia cutting back by about 170 kb/d more than required. The non-OPEC countries are complying more slowly at a rate of 51%, with Russia reducing its output very gradually. Due to the cuts, OPEC members are sitting on about 2.8 mb/d of effective spare production capacity (Iran and Venezuela are excluded from the calculation), with Saudi Arabia holding two-thirds of it. Much of this spare capacity is composed of crude oil similar in quality to Venezuela's exports. Therefore, in the event of a major loss of supply from Venezuela, the potential means of avoiding serious disruption to the oil market is theoretically at hand. 

Before the seriousness of the situation in Venezuela became apparent, our oil balances for the first half of 2019, which have not changed significantly since our last Report, suggested that the market is tightening. On the basis of solid oil demand growth, modest declines in OPEC production due to Iran and Venezuela, and rising US output, the market could show a modest surplus in 1Q19, before flipping into deficit in 2Q19 by about 0.5 mb/d. This does not take into account Saudi Arabia's announced plans to reduce its exports further in April.

Although we must await developments in Venezuela, if there were to be a collapse in production, it could provide an opportunity for other producers who can supply comparable barrels. Venezuela currently ships about 400 kb/d to both China and India. Elsewhere, other producers have already taken advantage of Venezuela's problems: as exports to the US have slumped following the imposition of sanctions, Russia has taken the opportunity to increase its shipments to the US from relatively modest levels to around 150 kb/d.

Geopolitics has added another complication to the global oil market. At the same time, production cuts have increased the spare capacity cushion. This is especially important now as economic sentiment is becoming more pessimistic and the global economy could be entering a vulnerable period. Another way in which the world is better placed to weather geopolitical storms is shown in the IEA's five-year oil market outlook Oil 2019 - Analysis and Forecasts to 2024, which we published on 11 March. A key theme is the growing importance of the US in global markets. Rising production there is not a new story; what is game changing is that the US in 2021 will become a net oil exporter on an annual average basis. With Canadian production also increasing, and most of its exports moving to US refineries, this frees up US crude for export. This year US seaborne oil trade will move into surplus with net exports rising to nearly 4 mb/d of by 2024. The rising profile of the US not only brings greater choice to consumers, but, crucially, it enhances security of supply, especially when, as now, there are heightened geopolitical concerns. 



World oil demand growth slowed sharply to 0.95 mb/d in 4Q18 from 1.5 mb/d in 3Q18. Feeble growth in OECD countries was responsible. Total OECD demand declined by 0.3 mb/d year-on-year in 4Q18 with sharp drops seen in Europe and Asia. North America demand rose by only 0.3 mb/d, a big fall from the 0.7 mb/d seen in 3Q18.

Our forecasts for oil demand growth in 2018 and 2019 are nevertheless unchanged, at 1.3 mb/d and 1.4 mb/d, respectively. December data were weaker than expected and November numbers were revised down in the OECD Americas. Demand in the Middle East and parts of Asia, however, was revised slightly upwards. The economic growth assumptions underpinning our forecasts are largely unchanged, although we see further weakness emerging in Europe.

For 2018, overall, total OECD demand increased by 310 kb/d and we expect growth to be broadly similar in 2019 at 335 kb/d. Complete data for 2018 show that the US was the largest contributor to growth in 2018. Non-OECD growth accelerated from 1.1 mb/d in 3Q18 to 1.3 mb/d in 4Q18. Within non-OECD, Asia demand increased by 870 kb/d in 2018 and will be slightly lower in 2019 at 830 kb/d. Total non-OECD demand increased by 965 kb/d in 2018, and growth is projected to accelerate to 1.05 mb/d in 2019.

Growth in the Americas in 2019 will continue to be supported by petrochemical demand in the US and should rise by 0.4 mb/d. Asia Pacific growth will continue at 0.7 mb/d. Middle East oil demand will reverse its 2018 decline and post a modest increase of 0.1 mb/d.



A second month of OPEC and non-OPEC (OPEC+) supply cuts, further losses in Venezuela and Canada and a seasonal drop in biofuels knocked 340 kb/d off global oil production in February. OPEC led the decline, with crude oil output dropping 240 kb/d month-on-month (m-o-m) to 30.68 mb/d, down 1.1 mb/d on a year ago. However, total liquids supply of 99.7 mb/d was still up 1.5 mb/d on a year ago thanks to a strong performance by non-OPEC countries, led by the US.

In 2018, the US contributed 79% of the 2.8 mb/d of non-OPEC growth. The relentless pace continues into 2019, when US supply is expected to expand by 1.5 mb/d and account for 83% of non-OPEC growth of 1.8 mb/d. Record production in the latter part of last year in the US, Saudi Arabia, Russia and Iraq contributed to a substantial build in inventories. This led OPEC, Russia and nine other non-OPEC countries to agree to cut production by 1.2 mb/d from January to June.

Thanks to outperformance by Saudi Arabia and its Gulf allies, those cuts are starting to work. In February, OPEC+ production was 240 kb/d above the target of 44.3 mb/d, which delivered a compliance rate of 80%. OPEC's compliance was a robust 94%, compared to 51% from non-OPEC. Russia continues to adjust its production gradually. If the producers deliver on their promises, the market could return to balance in the second quarter. The call on OPEC crude rises to 30.9 mb/d in 2Q19, 200 kb/d more than the group produced in February. OPEC and its allies are scheduled to meet on 17-18 April to review the pact, although Saudi Energy Minister Khalid al-Falih has said it would be too early to change policy then.

The OPEC+ deal, US sanctions against Iran and Venezuela and Alberta's production cuts have had a major impact on the supply of medium-heavy oil. Compared to November, when Saudi Arabia, Russia and Iraq were pumping at or near record rates, supply of these grades has fallen by nearly 1.5 mb/d (see Prices and Refining sections). That is 90% of the overall reduction in global crude supply since November. In March, medium-heavy output is likely to fall further with Venezuela's oil sector hit hard by power outages on top of US sanctions and if Saudi Arabia delivers on planned reductions.



Developments since the start of the year contain both good news and bad news for global refiners. The good news is that margins finally started improving in February, which saw the first monthly gains since November for most regions. The bad news is that the likely reason was refining underperformance. 4Q18 global refining throughput declined 0.5 mb/d year-on-year (y-o-y), for the first time since 2016. Moreover, since the January edition of this Report, we have revised down our assessment of January through February throughput by 0.2 mb/d on average due to extended maintenance and unplanned shutdowns. Product cracks simply reacted to tighter markets. Additionally, the support came mainly from fuel oil cracks. This was, again, mostly a supply-side factor (see Margins).

Most of the annual growth in refining throughput in 2019 will be back-end loaded, as additions start up very gradually. Growth is almost entirely found East of Suez, which will account for 1.1 mb/d out of the global total 1.2 mb/d. After seeing peak maintenance in March, runs are expected to ramp-up by 4 mb/d by August. As global throughput grows, seasonal variations will increase in amplitude, potentially adding to crude oil price volatility.


Heavy maintenance and unscheduled outages on both sides of the Atlantic helped refining margins climb in February in all regions. Despite strong average month-on-month (m-o-m) increases in crude prices, refined product cracks improved. US Midwest margins doubled and are now back in double-digit territory as PADD 2 refining throughput plunged almost 400 kb/d m-o-m. Developments elsewhere, i.e. the seaborne hubs of the US Gulf Coast, Europe and Singapore, were more nuanced. In these regions, simple refinery margins gained more than complex margins as fuel oil cracks saw the strongest increases among refined products.

The strength of fuel oil cracks and simple refining margins may look somewhat counterintuitive given the impending implementation in 2020 of the International Maritime Organisation's rules on sulphur in marine fuel. In our five-year outlook in Oil 2019 - Analysis and Forecasts to 2024 (Oil 2019) published on 11 March we forecast high-sulphur fuel oil use in marine bunkers to drop 60% from the 2019 level to just 1.4 mb/d in 2020. However, spot fuel oil cracks are pricing in only current market fundamentals and not future expectations. Output of high sulphur fuel oil has already started to decline well before the implementation of the new IMO rules. In this regard, supply adjustments, both voluntary and accidental, have come ahead of demand changes. By voluntary adjustments, we mean upgrading units, such as cokers, vacuum distillation units, and solvent de-asphalting that have come online in recent months and reduced fuel oil yields. Accidental fuel oil supply decreases relate to the cuts in production of global medium-heavy crude grades (see Supply). The estimated 1.4 mb/d reduction in the output of these grades since November could have led to almost 500 kb/d less primary distillation output of fuel oil.

Most straight-run residual oil is used as feedstock for secondary units to produce lighter products. Typically, less than a quarter of fuel oil ends up in final product markets. Still, the volume loss is large enough to make a difference in fuel oil cracks, which have gained strength in the last five months. This has had an interesting effect on refining margins, by shrinking the upgrading differential. The difference between simple and complex margins for the same crude type narrowed sharply last November and has not recovered since.

When taking into account expected developments in crude oil markets and refining this year it is difficult to envisage a reversal of the situation. Supply of medium-heavy grades will likely remain constrained due to a combination of geopolitical and operational factors (Venezuela, OPEC+ agreement, Iran, etc). Refining capacity coming online this year is complex, with some sites boasting zero yields of marketable fuel oil. In this context, the recent announcement by Rosneft of a delay in commissioning its fleet of hydrocrackers and cokers from 2019 to late 2020-early 2021 may make commercial sense. On the other hand, the company is a traditional laggard in Russia's long-running refinery modernisation programme, having mostly focused on upstream projects.

The margin premium that complex refineries have enjoyed for many years is slowly disappearing as increasing complexity is confronted by a lightening of the global average crude barrel. As we noted in Oil 2019, we might be seeing the beginning of the reversal of the historical trend, with the emphasis moving from more complex to simpler refining operations.



OECD commercial stocks rose 8.6 mb month-on-month (m-o-m) in January to 2 881 mb, the third straight monthly increase and the eighth in the last year. Stocks reached their highest level since November 2017. However, the gain was less than usual for the time of year, when maintenance at refineries and lower consumption of motor fuels boosts both crude and product stocks. The surplus to the five-year average fell from 50 mb in December to 21 mb.

Crude stocks built 20.3 mb on the month to reach 1 102 mb, a nine-month high, with gains recorded in all three OECD regions. NGL and feedstock holdings rose 1.9 mb m-o-m and remained close to the historical high reached at the end of last year. By contrast, oil product holdings declined counter-seasonally, by 13.6 mb m-o-m to 1 445 mb, due to lower refining output and higher demand for heating fuels in the northern hemisphere. OECD middle distillate inventories fell 10.1 mb and stood 33 mb below the five-year average at end-month, just 11 months before the implementation of the International Maritime Organisation's new bunker sulphur rules that will boost demand for gasoil.

Preliminary data for February show stocks declining in all three OECD regions and by 29.8 mb overall. If confirmed, this would be the largest downward movement in OECD stocks for 11 months and return the bloc's inventories to below the five-year average. The steepest fall was seen in the United States, where product stocks declined 19.6 mb due to refinery maintenance. Crude stocks continued to build with higher light tight oil (LTO) output and despite record high crude exports.

OECD stocks were revised up by 15.1 mb in December. The biggest adjustment was in the Americas, particularly in Mexico, where crude stocks increased 1.2 mb m-o-m to 29 mb, their highest in 15 months, due to low refinery runs. Middle distillate stock figures were also revised up significantly in the Americas and in Europe. Finally, November stock figures were also changed, in this case down by 4.3 mb.


Market overview

Oil prices increased month-on-month (m-o-m) in February as Vienna Agreement members cut output and supplies from Iran and Venezuela declined further. ICE Brent rose above $65/bbl for the first time in three months and NYMEX WTI maintained an almost $10/bbl discount to Brent. Medium-heavy crudes, in particular, are in short supply and there is potential for further market tightening as Saudi Arabia has announced it will again reduce output into April and Iranian sanction waivers are due to expire in May. This has boosted the price of crudes such as Mars, which is currently trading at a premium of over $7/bbl to WTI, a five-year high. Elsewhere, sour Dubai has been priced higher than sweet North Sea crude since 21 February and this has made Brent-linked crude from the North Sea and West Africa more attractive to Asian buyers. In product markets, gasoline cracks have recovered from multi-year lows. Refinery maintenance and outages helped to clear the global supply glut and the US began the transition to higher-cost summer fuel. The reduced availability of heavy crude means that refiners are producing less fuel oil and this supported prices for high- and low- sulphur fuel oil.