Oil driven by fundamentals; economic reports

Global equity markets have continued to price in a resolution to the U.S. fiscal cliff situation as shown in the EMI Global Equity Index table below. The Index is now higher by 1.5% for the week resulting in the year to date gain widening to 9.6% or the highest level since early April of this year. Germany remains at the top of the leaderboard showing a 29% gain for 2013 with four other bourses also showing double digit gains for the year. Global equity markets have been a positive price driver for oil prices as well as the broader commodity complex for the last week or so.

This morning the International Energy Agency released their monthly oil market report. Both OPEC and the EIA issued their reports yesterday with no change in oil demand projections for this year or for 2013 but with a bump up in supply from the U.S. in the EIA report. Following are the highlights from the IEA report which is pretty much in sync with the EIA and OPEC reports, except the IEA increased their projection for oil demand for 2013 as China demand is growing.

Oil futures extended earlier declines in November, as persistent concerns about the economy and the looming U.S. fiscal cliff appeared to eclipse those about political risks in Israel, Gaza, Syria and Iran. Benchmark crudes inched further down in early December, with WTI last trading at $85.90/bbl and Brent at $107.85/bbl.

Global oil demand is projected at around 90.5 mb/d in 4Q12, 435 kb/d more than forecast last month, following stronger-than-expected October preliminary demand data and signs of improving Chinese sentiment. Relatively sluggish demand growth is forecast through 2013, as global economic expansion remains tepid.

Non-OPEC production bounced back by 0.7 mb/d in November on the month, to 54 mb/d, after fields in the North Sea and Brazil returned from maintenance. U.S. output also rose steeply and will contribute to an aggregate non-OPEC increase of 0.9 mb/d to 54.2 mb/d in 2013, the highest growth rate since 2010.

OPEC crude oil supply inched up by 75 kb/d to 31.22 mb/d in November, led by higher output from Saudi Arabia, Angola, Algeria and Libya. Nigerian output remained constrained by severe flooding and sabotage. Iranian production edged lower under the weight of shipping constraints and stepped-up sanctions.

OECD commercial oil inventories drew by a seasonal 16.2 mb to stand at 2 722 mb in October, bringing to a halt seven consecutive months of stock building. Forward cover remains at 59.1 days, unchanged from a downwardly-revised September level. Preliminary data indicate a further draw in November.

Global refinery runs have been revised lower by 140 kb/d for 4Q12 to average 75.3 mb/d. Growth is nevertheless expected at 950 kb/d year-on-year, driven by non-OECD Asia. Refinery margins extended earlier declines in November, led by decreases in gasoline and fuel oil cracks.

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