HomeResearch and NewsOil Market Report - January 2019
Vitaly Gromadin CFA, Senior Analyst

Oil Market Report - January 2019

EXECUTIVE SUMMARY

In January, 2019 the market of crude oil continued to recovery after severe turmoil during the 4th quarter of 2018. By the end of the month the price of Brent crude oil soared by $7.7 or 14.6% mom to $60.9. The oil market was buoyed by signs of tightening crude oil supply as Saudi Arabia and allies reduced production in December, 2018 and agreed to do so in following months as well as by overall more optimistic mood among investors community. However, after a rapid sprint to the area above $60 per one barrel of Brent crude during the 1st half of the month the rally got exhausted and the market turned to the phase of consolidation.

Crack spreads of main crude oil benchmarks in January, 2019 significantly contracted. Thus, WTI 3-2-1 crack spread went down by $3.3 or 6.4% relative to an average price of one barrel of WTI crude oil that was equal to $51.5. The figure is close to minimal levels since Q1 of 2016. Brent 3-2-1 crack spread declined by $3.8 or the same 6.4% of average Brent crude oil price for the period to $3.5 that is the minimal level of last 5 years. Tapis 3-2-1 crack spread tumbled by $4.6 and turned up on the negative territory. So despite to comparatively low prices of crude oil relative to average levels of spring-summer’2018 an industry of oil processing turned to be in very difficult situation, especially in Asia region, as price of refined oil products in general have dropped down even more significantly.

Crude oil production of OPEC as a whole in January, 2019 was 1.53 mln bbl / d or 4.7% mom lower than it was in December, 2018 under the data provided by Bloomberg agency. So sharp drop in overall OPEC production in January, 2019 was partly caused by Qatar’s decision to leave the cartel on January, 1 (the declaration was made in December, 2018). Qatar was accounted for approximately 600 thsd bbl / d of oil output or less than 2% of total cartel’s production. Excluding Qatar’s factor OPEC crude oil production in January, 2019 dropped by 930 thsd bbl / d or -2.9% mom. The other reason why OPEC decreased crude oil extraction in January was the joint agreement within so-called OPEC+ group to cut oil production by 1.2 mln bbl / d. So Saudi Arabia and the UAE slowed down the pace they pump oil by 450 thsd bbl / d or 4.2% mom and 110 thsd bbl / d or 3.4% mom respectively. Crude oil output in January, 2019 also dropped in Iran by 150 thsd bbl / d or 5.2% mom as a continuous effect of US sanction and in Libya by 100 thsd bbl / d or 10.0% mom due to rebels took over of El Sharara field.

Global oil production fell in December, 2018 (the latest reported month by the EIG) by nearly 0.5 mln bbl / d or 0.5% mom. The main cutback was made by OPEC that as a whole extracted approximately 0.6 mln bbl / d of oil less than in November 2018 (-1.5% mom). The contraction of crude oil output in OPEC group in December 2018 was even more substantial and was amounted to -2.1% mom or 0.7 mln bbl / d. The same time aggregate oil production in non-OPEC states slightly increased in the reported month by 94 thsd bbl / d or 0.2%, but all production growth was registered in NGLs. Crude oil output in non-OPEC countries virtually unchanged in December 2018 and stood near the all-time high of 51.8 mln bbl / d.

Crude oil production in the USA in January 2019 increased by 200 thsd bbl / d or 1.7% mom in accordance with weekly reports of US DOE. Relative to one year ago figures output of crude oil in the USA skyrocketed by remarkable 21.4% yoy or 2.0 mln bbl / d. Production of natural gas liquids (NGLs) in the USA in January 2019 slightly decreased by 38 thsd bbl / d or -0.8% mom. The same time NGLs output in the reported month was 15.8% yoy or 625 thsd bbl / d higher than in January 2018. Pursuant to the most recent EIG data the USA continued to increase its market power and worked up its market share. The share of the USA in global crude oil production in December 2018 reached the new all-time high and for the first time exceeded 14.0%. As for the share of the USA in total crude oil production by non-OPEC states then it rose to the new high of 22.75%. So the US oil producers continued to be the main power of unbalance in the global oil market.

In January the IEA reported preliminary figures on oil inventories in OECD group for November, 2019. In compliance with the data total commercial oil stocks in OECD states slightly decreased by 2.5 mln bbl or -0.1% mom in the reported month. Relative to one year ago numbers OECD total commercial inventories of oil fell by 45.6 mln bbl or 1.6% yoy. As for inventories of crude oil in OECD group then they grew up in November, 2019 by 13.2 mln bbl or 1.2% mom, while stocks of processed oil products contracted by 17.6 mln bbl or -1.2% mom. Looking at longer-term dynamics of these indicators OECD total crude oil stocks shrank by 49.8 mln bbl or -4.4% yoy relative to November, 2017 figures, while total inventories of oil products in OECD group during the same period diminished by 16.5 mln bbl or -1.2% yoy.

Total commercial inventories of crude oil in the USA in January, 2019 built up by 4.5 mln bbl or 1.0% mom in accordance with weekly data provided by US DOE. Comparing to one year ago level crude oil stocks in the USA in January, 2019 became larger by 27.6 mln bbl or +6.6% yoy. Relative to the peak level of US crude oil inventories that was recorded in April, 2016 (512 mln bbl) the end of January, 2019 number was roughly 66 mln bbl less. Crude oil stocks in Cushing oil storage in Oklahoma that is the basis for WTI oil futures in January, 2019 slightly decreased by 0.7 mln bbl or -1.8% relative to the previous month. So the negative impact of excessive stocks has been weakening in January that partly explains positive price dynamics and a reduction of spread between Brent and WTI oil benchmarks. However in comparison with one year ago number oil inventories in Cushing storage grew up in the reported month by 4.2 mln bbl or 11.2% yoy, so from the longer-term perspective the situation with oil stocks in Cushing still looks rather tight.

Download PDF

oil, investment, equity

Read more

Report Banking Sector Report - January 2019 Mikhail Zavaraev

US banks significantly outperformed the broad market on MoM basis in January after very weak performance in December when banks tumbled by 15.5%. Thus, banks showed the strongest monthly performance since the election rally of 2016. But BKX index underperformed SPX index in five months over the last 9 and it underperformed the broad market by 14.3% in 2018.

investment, banks;

Report Oil Market Report - December 2018 Sergey Fundobny

In December 2018 turmoil on the crude oil market extended further and the price of Brent oil finally tumbled to almost $50 per barrel level exactly on Christmas where it found some ground and reverted back. By the end of the month Brent crude oil as well as other crude oil benchmarks lost roughly 9-10% comparing to the end of November level. 

oil, investment, equity

Report Banking Sector Report - December 2018 Mikhail Zavaraev

US banks significantly underperformed the broad market on MoM basis in December after two consecutive months of outperformance. Thus, banks decreased markedly in absolute terms during the last month. So, BKX index underperformed SPX index in five months over the last 8 and it underperformed the broad market by 14.3% in 2018. In December, US banks tumbled by 15.5% MoM vs -9.2% of SPX index.

investment, banks;