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Oil Market Report - April 2019

EXECUTIVE SUMMARY

The spot price of the ICE Brent crude oil benchmark rose further in April 2019 to levels not seen since October 2018 and on April, 25 almost reached the threshold of $75 per barrel. Average monthly price of the ICE Brent crude oil in April 2019 was equal to $71.57 that is nearly 7.0% higher than it was in the previous month. Despite to mixed economic signals and downward revision of 2019 global economic forecasts crude oil market extended its gains and close the month near six-month highs as bullish sentiment was fuelled further by concerns about additional oil supply disruptions in the wake of new geopolitical risks in key oil producing regions. Oil market fundamentals were also supportive for oil prices growth in April as OPEC+ group continued to show high conformity levels with their voluntary production adjustments in order to bring more balance to the market. The bullish sentiment on the crude oil market can also be attributed to expectations of improving global refinery throughput in the 2nd and the 3rd quarters which is expected to rise after heavy refinery maintenance season this spring. However, in the first part of May, 2019 oil prices demonstrated some reversal from recent highs, probably due to overall risk-off on financial markets and stronger dollar.

Nevertheless we still see more and more signs that the rally on the oil market runs out of steam and expect a more significant downturn to come. As backwardation in Brent futures is now close to record levels we believe that current prices are reflecting too tight crude oil market fundamentals to expect them to be tighter any more. Crude oil production by OPEC states in April, 2019 nearly unchanged relative to the volume of the previous month and remained at the level of 30.3 mln bbl / d. However it doesn’t mean that all the cartel’s members extracted the same amount of oil as did a month earlier. The most significant increase of production on monthly basis in April, 2019 was observed in Libya where crude oil output ramped up by 90 thsd bbl / d or 8.2% mom. Iraq, Nigeria, Kuwait and UAE also produced marginally more oil in April, 2019 than they did in the previous month. Thus, oil production in Iraq grew up by 40 thsd bbl / d or 0.9% mom, oil production in Nigeria increased by 30 thsd bbl / d or 1.6% mom, Kuwait and UAE pumped expanded output by 20 thsd bbl / d or 0.7% mom each. The same time the main cutback was made by Iran that produced in the month of report 80 thsd bbl / d of oil or 3.0% mom less than in March, 2019 and by Angola, where crude oil production slumped by another 60 thsd bbl / d or 4.2% mom to new multi-years minimum.

In accordance with the most recent EIG data overall global oil production in March, 2019 decreased by roughly 0.5 mln bbl / d or 0.5% mom to 97.1 mln bbl / d. The main cutback took a place in OPEC states that as a whole reduced total oil output by 664 thsd bbl / d or 1.9% mom, while non-OPEC group of oil producing countries demonstrated marginal growth of output by 130 thsd bbl / d or 0.2% mom. Monthly change in production volumes of crude oil and natural gas liquids (NGLs) in March, 2019 was relatively close. Thus, in OPEC group crude oil production slump by 1.9% mom or 583 thsd bbl / d and NGLs production decreased by 1.5% mom or 81 thsd bbl / d. In non-OPEC cluster crude oil output for the same time grew up by 0.2% mom or 79 thsd bbl / d and NGLs output increased by 0.5% mom or 51 thsd bbl / d. On a single-state level the most significant growth of crude oil production in non-OPEC group in March, 2019 was recorded in Brazil, where output grew up by 91 thsd bbl / d or 3.7% mom. Norway and Malaysia were also among the non-OPEC oil producers with growing output in the reported month. Thus, Norway pumped 53 thsd bbl / d or 3.8% more oil in March, 2019 than in the previous month and monthly growth of oil production in Malaysia was equal to 38 thsd bbl / d or 6.7% mom. By the same token the main cutback of crude oil output in non-OPEC group in March, 2019 was observed in China where production contracted by 106 thsd bbl / d or 2.8% mom. Mexico and Russia also demonstrated negative monthly pace of oil output with reduction by 54 thsd bbl / d or 3.2% mom and 30 thsd bbl / d or 0.3% mom respectively.

Crude oil production in the USA in April, 2019 grew up by another 100 thsd bbl / d or 0.8% mom in accordance with weekly reports of US DOE to a new historical maximum. In compare with the volume of crude extraction in April, 2018 oil production in the USA in the month of report lifted by remarkable 15.4% yoy or 1.63 mln bbl / d. It also should be noted that the EIG usually provides slightly higher figures of crude oil production in the USA than US DOE does. For example, the EIG estimated oil output in the USA in March, 2019 as equal to 12.3 mln bbl / d while US DOE assessment for the same period was equal just to 12.1 mln bbl / d.

Total production of shale oil in the USA in April, 2019 picked up by modest 225 thsd bbl / d or 2.7% mom in compliance with the most recent data provided by Rystad Energy (a consultant agency). The same time shale oil producers in the USA pumped nearly 1.5 mln bbl / d or impressive 20.9% yoy more shale oil in the reported month than they did one year ago. The share of shale oil in total US crude oil output in April, 2019 continued to fluctuate around the level of 70% as it did in previous months and slightly increased to 71%.

In compliance with the most recent IEA report overall commercial stocks in OECD countries in February, 2019 modestly decreased by 21.7 mln bbl or 0.8% mom. The main force of overall stocks contraction in the reported month were stocks of refined oil products that dropped down by 30.2 mln bbl or 2.1% mom. By the same token commercial stocks of crude oil around the globe in February, 2019 slightly increased by 10.5 mln bbl or 1.0% mom. As for the annual changes of commercial oil stocks then the overall figure rose by 15.2 mln bbl or 0.5% yoy with decrease of crude oil inventories by 2.2 mln bbl or shy 0.2% yoy and decrease of oil products inventories by 1.1 mln bbl or 0.1% yoy.

Total commercial inventories of crude oil in the USA in April, 2019 notably increased by 4.7% mom or 21.0 mln bbl in compare to the volume of the previous month in accordance with weekly data provided by US DOE. Comparatively to one year ago level total commercial stocks of crude oil in the USA in the month of report went up by significant 7.9% yoy or 34.6 mln bbl. Relative to the peak level of US crude oil inventories that was recorded in April, 2016 (512 mln bbl) the final number for April, 2019 was roughly 42 mln bbl less.

Meanwhile crude oil stocks in Cushing oil storage in Oklahoma that is the basis for WTI oil futures in the same months noticeably decreased by 1.9 mln bbl or 4.1% mom relative to the value of the previous month in April, 2019. Nevertheless relative to the year ago level of April, 2018 crude oil inventories in Cushing in the month of report were 26.3% yoy or 9.4 mln bbl higher. Thus, despite to a certain contraction of oil held in Cushing storages during the recent month the oil ‘glut’ in the US oil market still persists, so excessive oil inventories continues to negatively impact on prices of WTI oil benchmark as well as other US midland oil benchmarks.

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