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Oil Market Report - June 2019

EXECUTIVE SUMMARY

Crude oil market ended June 2019 marginally higher with ICE Brent spot price growing by 2.4% mom or $1.5, although monthly average prices of crude oil in June 2019 was more than 10% lower than they were in the previous month due to sharp downward movement in the last decade of May. And this was the biggest monthly drops of average crude oil prices in six months. In the first days of June 2019 oil prices continued the downward trend as market sentiment was dominated by concerns about weakening global economic and oil demand growth. Such concerns were fueled by disappointing global economic data and escalating trade disputes between the US and China, as well as plans from the US administration to impose new tariffs on imports from Mexico. Furthermore, most of the forecasting agencies revised down their global oil demand projections for 2019, highlighting uncertainties about trade disputes and their impacts on energy demand. Subdued performances in global equity markets also weighed on oil futures prices. However, in the second part of June crude oil prices demonstrated a certain kind of reversal, supported by heightened geopolitical tensions in the Middle East, as well as declining US crude oil and product stocks after US crude exports hit a new record high of 3.8 mln bbl / d. Nonetheless, the oil price steadied as the market awaited the outcomes of the US-China meeting on the sidelines of the G-20 summit in late June, as well as the OPEC and Non-OPEC ministerial meetings in early July.

Total crude oil production by OPEC states in June 2019 modestly diminished by 130 thsd bbl / d or 0.4% mom to the level of 30.0 mln bbl / d. The volume of May 2019 was also revised down by the same 130 thsd bbl / d. So the cumulative oil output of the cartel’s members in the month of report dropped to the lowest level over 5 last years. Last month when the cartel pumped less than 30 mln bbl / d was May 2014. In comparison with one year ago numbers OPEC as a whole produced 2.3 mln bbl / d or 7.1% yoy less oil in June 2019. However if we exclude Qatar who canceled its membership in the cartel in December 2018 then the overall contraction of the cartel’s crude oil output will be less dramatic and equal to by 1.7 mln bbl / d or 5.4% yoy. The main contribution to continued slump of cumulative OPEC production in the reported month was again made by just 2 states, namely Saudi Arabia and Iran. Both countries reduced their output in June 2019 by 100 thsd bbl / d or 1.0% mom and 4.2% mom respectively. But it is worth to note that if Saudi Arabia in the month of report extracted 690 thsd bbl / d or 6.6% yoy less oil than it did in June 2018, then Iran in terms of year-over-year dynamic experienced severe downturn of crude oil production that tumbled by 1.5 mln bbl / d or shocking 39.7% yoy.

Total oil production around the globe insignificantly increased in June 2019 by nearly 200 thsd bbl / d or 0.2% mom relative to the previous month in accordance with the numbers provided by the EIG. Meanwhile in comparison with one year ago figures cumulative crude oil production around the globe in June 2019 slightly decreased by 280 thsd bbl / d or 0.3% yoy. On a single-state level the most dramatic changes of crude oil production among non-OPEC states in June 2019 relative to the previous month was recorded in the European region where crude oil production in Norway collapsed by 0.3 mln bbl / d or shocking 23.1% mom and crude oil output in the UK tumbled by 125 thsd bbl / d or 11.2% mom. Meanwhile some non-OPEC oil producers demonstrated healthy growth of crude oil production during the same period of time, namely China, Brazil and the USA. In particular China in June 2019 extracted 95 thsd bbl / d or 2.5% mom more oil than it did one month ago, production growth in Brazil and the USA was equal to 84 thsd bbl / d or 3.1% mom and 72 thsd bbl / d or 0.6% mom respectively.

Crude oil production in the USA in June 2019 marginally contracted by 50 thsd bbl / d or 0.4% mom in accordance with weekly reports of US DOE. However from the year over-year point of view the output of crude oil in the USA in June 2019 shot up by remarkable 11.9% yoy or 1.3 mln bbl / d. The share of the USA in crude oil output around the globe in June 2019 insignificantly increased by 7 b.p. to 14.74% in accordance with the EIG data as the agency printed positive monthly change of crude oil production in the USA. Relative to one year ago level the share of the USA in global crude oil production in June 2019 grew up by solid 1.93 p.p. The dynamic of the US share in cumulative crude oil output of non-OPEC states in the month of report was nearly flat, the indicator added just 3 b.p. and brought closer to the level of 23%. Relative to one year ago level the share of the USA in cumulative crude oil production of non-OPEC states in June 2019 rose by impressive 2.34 p.p.

Cumulative production of shale oil in the USA grew up by another 144 thsd bbl / d or 1.7% mom in June 2019 relative to the previous month in compliance with the most recent data provided by Rystad Energy (a consultant agency). Comparing to one year ago figures total shale oil production in the USA in June 2019 shot up by more than 1.4 mln bbl / d or solid 19.6% yoy. The share of shale oil in cumulative production of crude oil in the USA by the end of the reported month reached 72.0%.

In its report for June 2019 the International Energy Agency (IEA) sounded preliminary figures on commercial oil inventories in OECD countries for April 2019. According to the data total commercial stocks of oil and oil products in OECD states in the reported month marginally increased by 0.6% mom or 15.9 mln bbl comparing to the volume of the previous month. Meanwhile total commercial inventories of crude oil in April 2019 built up by 1.1% mom or 12.8 mln bbl, but total commercial stocks of refined oil products contracted by 0.5% mom or 7.1 mln bbl. By the same token cumulative inventories of crude oil and processed oil products in April 2019 was higher than they were in April 2018 by 62.8 mln bbl or 2.2% yoy. Thus, total commercial stocks of crude oil in the reported month grew up by 3.0% yoy or 33.3 mln bbl relative to April 2018 and total stocks of oil products expanded by 1.4% yoy or 20.1 mln bbl.

Total commercial inventories of crude oil in the USA in June 2019 modestly contracted by 3.1% mom or 14.8 mln bbl relative to the volume of the previous month in accordance with weekly data provided by the US DOE. In contrast with the volume recorded in June 2018 total commercial stocks of crude oil in the USA in the reported month expanded considerably by 12.1% yoy or 50.6 mln bbl. Relative to the peak level of US crude oil inventories that was observed in April 2016 (512 mln bbl) the final number for June 2019 was roughly 43.5 mln bbl or 8.5% less. Despite to a certain decrease of inventories during the recent month the current level of commercial crude oil stocks in the USA is relatively close to 2-years high.

Inventories of crude oil in Cushing storage in Oklahoma that is the basis for WTI oil futures marginally expanded in June 2019. The monthly pace of growth was equal to 3.2% mom or 1.6 mln bbl. Nevertheless the build up was enough to drive the volume of inventories in Cushing to new high since November 2017. In compare with one year ago level the size of inventories in the storage skyrocketed by shocking 88.9% yoy or 24.7 mln bbl.

Total crude oil stocks stored on floating storages (including oil in transportation) around the globe in June 2019 built up by 7.3% mom or 4.8 mln bbl relative to May 2019 to the level of 70.6 mln bbl that is close to 3-years average. Relative to one year ago level cumulative crude oil inventories on floating storages in June 2019 demonstrated impressive growth of 63.4% yoy and expanded by 27.4 mln bbl for last 12 months. Nevertheless it is worthwhile to note that the numbers of floating storages volumes are highly volatile to make any longer-term predictions.

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