Oil waits on inventories as demand expectations lowered

The IEA also just released their monthly oil market assessment and also lowered global oil consumption slightly for 2013. Following are the main IEA report highlights.

  • Futures prices for benchmark grades traded in a narrow range in May and edged lower in early June. Bearish market sentiment prevailed throughout most of May against the backdrop of a more anemic economic outlook. Brent last traded at $102.15/bbl while WTI was pegged at $94.50/bbl.
  • The forecast of global oil demand growth is little changed at 785 kb/d (0.9%) for 2013. Absolute demand estimates have been trimmed on account of revised historical data for Russia.
  • Global supplies edged lower by 90 kb/d m-o-m to 91.2 mb/d in May on Canadian maintenance, but rose by 180 kb/d y-o-y, led by OPEC NGLs and non-OPEC supply. Maintenance will cut North Sea supplies from 3.0 mb/d in 1Q13 to 2.6 mb/d in 3Q13. Non-OPEC supply growth is forecast at 1.1 mb/d for 2013, unchanged since last month.
  • OPEC crude oil supply in May rose by 135 kb/d to 30.89 mb/d, a seven-month high. Increased output from Saudi Arabia, Iran, the UAE and Kuwait was partially offset by reduced supplies from Iraq, Libya and Nigeria. The ‘call on OPEC crude and stock change’ for 2H13 was trimmed by 200 kb/d to 29.8 mb/d due to lower demand expectations.
  • The seasonal ramp-up in global crude throughputs is expected to be steeper than normal this year, with runs increasing by 2.2 mb/d from 2Q13 to 3Q13. That seasonal increase, centered in the non-OECD, is due to new Saudi distillation capacity, increasing Chinese runs after heavy spring maintenance, and recovering throughput at Venezuela’s Amuay plant after a 2012 fire.
  • OECD commercial oil stocks built by seasonal 16.7 mb in April, to 2 680 mb, led by crude oil, NGLs and refinery feedstock’s. On a forward cover basis, OECD product stocks fell seasonally by 0.2 days, to 30.6 days. Preliminary data suggest total oil stocks built by a further 11.1 mb in May.

The EIA released their latest Short Term Energy outlook yesterday afternoon. The EIA joined OPEC in lowering their projection for oil consumption in 2013. Following are the main oil related highlights.

  • World liquid fuels consumption grew by 0.8 million bbl/d in 2012 to reach 89.2 million bbl/d. EIA expects world consumption to grow by 0.9 million bbl/d in 2013 and by 1.2 million bbl/d in 2014.
  • Non-OECD Asia, particularly China, is the leading contributor to projected global consumption growth. EIA expects refinery crude oil inputs in China to increase in 2013 as new refining capacity continues to come on line. EIA estimates that liquid fuels consumption in China increased by 380,000 bbl/d in 2012. Recent indicators of weaker industrial data at the beginning of 2013 signaled slower economic growth than in prior years and a downside risk to robust oil demand growth. Projected consumption increases by 420,000 bbl/d in 2013 and by 430,000 bbl/d in 2014, compared with average annual growth of about 520,000 bbl/d from 2004 through 2012.
  • OECD liquid fuels consumption fell by 0.6 million bbl/d in 2012. EIA projects OECD consumption to decline by an additional 0.5 million bbl/d in 2013 and 0.2 million bbl/d in 2014, largely because of declining consumption in Europe and Japan.
  • EIA projects liquid fuels production by countries that are not members of the Organization of the Petroleum Exporting Countries (OPEC) will increase by 1.2 million bbl/d in 2013 and by 1.6 million bbl/d in 2014. North America accounts for much of the projected growth in non-OPEC supply over the next two years because of continued production growth from U.S. tight oil formations and Canadian oil sands. EIA expects non-OPEC supply to also grow in Central and South America by an average of 160,000 bbl/d each year over the next two years, as Brazil and Colombia bring new production on line.
  • Projected OPEC total supply, which increased by 1.2 million bbl/d in 2012, falls by 0.4 million bbl/d in 2013 and by another 0.1 million bbl/d in 2014. Most of the decline in 2013 comes from Saudi Arabia in response to non-OPEC supply growth, although Saudi production increases for the next few months because of seasonal demand. Iraq and Angola account for most of the increase in 2014. At the last OPEC meeting on May 31, 2013, the organization decided to retain its production target of 30 million bbl/d through the rest of 2013.
  • EIA estimates that OECD commercial oil inventories at the end of 2012 totaled 2.65 billion barrels, equivalent to 57.7 days of supply. Projected OECD oil inventories stay relatively steady in 2013, ending the year at 2.64 billion barrels (57.3 days of supply). Projected inventories increase to 2.68 billion barrels (58.3 days of supply) at the end of 2014.
  • The NOAA Atlantic Hurricane Season Outlook predicts that the Atlantic Basin likely will experience above-normal tropical weather activity during the current hurricane season. EIA estimates that the median outcome for shut-in crude oil production in the federally administered Gulf of Mexico because of disruptions during the 2013 hurricane season is 19 million barrels. There is a wide range of uncertainty around this forecast (see the 2013 Outlook for Hurricane-Related Production Outages in the Gulf of Mexico). EIA's simulation results indicate a 58‚Äźpercent probability of offshore crude oil production experiencing outages during the current hurricane season that are equal to or larger than the 14 million barrels of production shut in during the 2012 hurricane season.
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