HomeResearch and NewsOil Market Report - May 2019

Oil Market Report - May 2019


Crude oil futures prices ended May 2019 sharply lower and reached their lowest levels since February 2019, with ICE Brent falling by more than $7, or about 12%, during the month, and NYMEX WTI posted about a $10, or 19% slide. Oil prices registered higher volatility, particularly in late of the month, fueled by uncertainty about the world economy and the impact on global oil demand. Oil futures declined severely on signs of slowing economic growth and growing concerns about the global economic and oil demand outlook amid intensifying trade tensions between the US and China, after the move to impose additional tariffs, which triggered steep declines in equity markets. Weakening refining margins, a subdued performance by oil products, consecutive weeks of rising US crude oil inventories, and sustained historically high levels of US oil supply also weighed on prices. Oil prices declined further in late May, along with equity markets and other commodity prices, after the US President announced plans to impose tariffs on imports from Mexico, which amplified worries and uncertainty to the markets, pushing equity indexes and commodity prices sharply lower. This all dampened the impact of several planned and unplanned supply outages that were reflected in the widening backwardation structure in Brent and Dubai, as well as heightened geopolitical tensions in several regions. Nonetheless, high conformity levels with the voluntary production adjustments of the Declaration of Cooperation continued to support the market.

Total crude oil production by OPEC states in May 2019 practically unchanged relative to the previous month and remained at the level of 30.26 mln bbl / d for the 3rd month in a row. Nevertheless the flat dynamics of the cartel’s production again didn’t mean that all the members of OPEC extracted the same volume of crude oil as they did a month earlier. However, cumulative crude oil output by OPEC states in May decreased by 1.54 mln bbl / d or 4.8% yoy in comparison with one year ago figure. But if we exclude Qatar who canceled its membership in the cartel in December 2018 then the overall contraction of crude output of the cartel will be not so large, just by 0.94 mln bbl / d or 3.0% yoy. The main unbalancing factors in May 2019 among OPEC members were Iran and Saudi Arabia. Thus Iran significantly decreased the amount of oil it produced by 230 thsd bbl / d or 9.0% mom, while Saudi Arabia built up its crude oil output by 170 thsd bbl / d or 1.7% mom. It is notable that if Saudi Arabia in May 2019 pumped roughly the same volume of oil as it did in May 2018 then Iran experienced severe downturn of crude oil production that tumbled by nearly 1.5 mln bbl / d or shocking 39.1% yoy. It is obviously that such a collapse of Iran’s output became the result of sanctions on oil import imposed on Iran by the USA and its allies.

Cumulative oil production around the globe remained virtually the same in April 2019 relative to the previous month at the level of 96.8 mln bbl / d according to the most recent data, provided by the EIG. By the same token cumulative global oil production in April 2019 rose by minor 570 thsd bbl / d or 0.6% yoy in comparison with one year ago figures. On a single-state level the most dramatic changes of crude oil production among non-OPEC states in April 2019 relative to the previous month was recorded in Russia and other ex-USSR states (mainly Kazakhstan) where output of crude oil went down by 153 thsd bbl / d or 1.3% mom and by 138 thsd bbl / d or 5.3% mom respectively. Negative monthly production dynamic was also observed in the USA (-33 thsd bbl / d or -0.3% mom) and Malaysia (-32 thsd bbl / d or -5.3% mom). However these cutbacks were offset by crude oil extraction expansion in Canada (+83 thsd bbl / d or +2.0% mom), Brazil (+71 thsd bbl / d or +2.8% mom) and China (+23 thsd bbl / d or +0.6% mom). As for the pace of crude oil production change over last 12 months the indisputable leader of oil output growth in April 2019 again was the USA where extraction of crude oil skyrocketed by nearly 1.5 mln bbl / d or solid 14.4% yoy. Tangible increase of crude oil output in April 2019 relative to April 2018 also took place in Canada that pumped 155 thsd bbl / d or 3.8% yoy more oil and Russia where crude oil production expanded by 153 thsd bbl / d or 1.4% yoy. By the same token Mexico and ex-USSR states (mainly Kazakhstan) were in the reported month the states with the most considerable decline of crude oil output. The rates of yearly contraction were equal to 174 thsd bbl / d or 9.3% yoy and to 175 thsd bbl / d or 6.6% yoy accordingly.

Crude oil production in the USA in May 2019 marginally went up by another 50 thsd bbl / d or 0.4% mom in accordance with weekly reports of US DOE to a new historical maximum. However from the year-over-year point of view the output of crude oil in the USA in May 2019 shot up by remarkable 14.2% yoy or more than 1.5 mln bbl / d. It should be noted that in its latest monthly report the EIG finally reassessed its figures of crude oil production in the USA to the downside. So if earlier the EIG usually printed higher numbers of crude oil production in the USA in comparison with the data provided by US DOE, then now the EIG published more conservative figures than US DOE did. Thus, according to the EIG cumulative crude oil output in the USA in April 2019 was equal to 11.9 mln bbl / d while according to US DOE the number was equal to 12.2 mln bbl / d.

Cumulative production of shale oil in the USA grew up by another 162 thsd bbl / d or 1.9% mom in May 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 May 2019 shot up by more than 1.6 mln bbl / d or incredible 22.3% yoy. The share of shale oil in cumulative production of crude oil in the USA by the end of the reported month reached 72.1% that is a new high of the current year.

The International Energy Agency (IEA) finally published its assessments of demand for oil around the globe in the 1st quarter of 2019. Cumulative global demand for oil modestly decreased in the 1st quarter of 2019 by 310 thsd bbl / d or 0.3% qoq comparatively to the 4th quarter of 2018. Moreover, the number for the 4th quarter of 2018 was also revised down to 99.39 mln bbl / d versus initial estimate of slightly above 100 mln bbl / d. Nevertheless on year-over-year basis total global demand for in the 1st quarter of 2019 was stronger than 12 months ago and grew up by the pace of 0.7% yoy or 640 thsd bbl / d.

The IEA also has cut its assessment of global oil demand growth in 2019 for a second consecutive month in its June report. It is now projected at just 1.2 mb/d. In 1Q19, global growth was only 0.3 mb/d, and for 2Q19 the estimate is 1.2 mb/d. The agency expects higher growth in 2H19 at 1.6 mb/d. According to the latest IEA forecast in 2020 global oil demand growth will rise to 1.4 mb/d, supported by solid nonOECD demand and petrochemicals expansion. The IMO switch will result in major changes to bunker fuel demand, sharply increasing gasoil demand from 4Q19.

In May 2019 the IEA reported preliminary figures on commercial oil inventories in OECD countries for March 2019. Cumulative commercial stocks of oil and oil products in OECD states contracted by 25.7 mln bbl or 0.9% mom in March 2019 in compare with the volume of the previous month. The main cutback of inventories was caused by decrease of stocks of refined oil products that dropped down by 20.3 mln bbl or 1.4% mom. Inventories of crude oil declined not so significantly in the reported month and lost only 6.3 mln bbl or 0.6% mom. Meanwhile the size of commercial oil inventories in OECD countries in March 2019 was higher than it was one year ago, specifically in March 2018. Thus overall stocks of oil and oil products grew up by 34.4 mln bbl or 1.2% yoy during last 12 months, inventories of refined oil products marginally increased by 2.2 mln bbl or 0.2% yoy and inventories of crude oil added 15.0 mln bbl or 1.4% yoy.

Total commercial inventories of crude oil in the USA in May 2019 modestly grew up by 12.7 mln bbl or 2.7% mom in compare to the volume of the previous month in accordance with weekly data provided by US DOE. Relative to the volume of May 2018 total commercial stocks of crude oil in the USA in May 2019 went up by considerable 11.2% yoy or 48.8 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 May 2019 was just roughly 28.7 mln bbl less.

The current level of commercial crude oil stocks in the USA is very close to 2-year high. Inventories of crude oil in Cushing storage in Oklahoma that is the basis for WTI oil futures also expanded in May 2019 and pace of inventories build-up here was dramatic than it was in overall commercial stocks. Thus relative to the previous month the size of inventories in Cushing grew up by 12.5% mom or 5.7 mln bbl, while in compare to one year ago level the size of inventories skyrocketed by shocking 43.0% yoy or 15.3 mln bbl. Rapid growth of crude oil stocks in the USA in general and in Cushing in particular confirms the thesis that ‘oil glut’ doesn’t only still persist but even intensifies in the US oil market that continues to negatively impact on crude oil prices and explains huge discounts in prices of US midland crude benchmarks such as WTI.

Total crude oil stocks stored on floating storages (including oil in transportation) around the globe in May 2019 was equal to 67.9 mln bbl according to the assessments by a cargo-tracking and analytics company Vortexa Ltd. Thereby the indicator demonstrated a monthly decline by 9.1% mom or 6.8 mln bbl relative to the level of the previous month. Relative to one year ago level cumulative crude oil inventories on floating storages in May 2019 showed impressive growth by 39.1% yoy or 19.1 mln bbl.

Download PDF

oil, investment, equity

Read more

Oil Market Report - September 2022

As the crude oil market is experiencing its largest 90-day decline since March-April 2020, which was only exceeded prior to 2020 by market routs in 2014-15 and 2008-09, we see the limited downside in crude oil prices from the levels achieved and believe that the market would pass its trough before the winter starts as the fundamentals remains rather tight and only would get tighter in a couple of quarters ahead. On the demand side, both the OPEC and the IEA expected a rather robust growth of the global oil consumption in 2023, driven mainly by jet fuel and robust oil use for power generation in the Middle East and in Europe due to record natural gas and electricity prices. In addition, petroleum product markets, especially diesel, are expected to remain in deficit in coming quarters due to downstream capacity constraints outside of China as lower Chinese export quotas have sharply reduced its sales abroad and newly introduced taxes in India have discouraged exports from Asia’s largest supplier. 

oil, investment

Banking Sector Monthly Report - August 2022

US banks outperformed the broad market slightly in August 2022, for the first time over the last three months. However, BKX index ended the month in the red, for the 5th time out of the first 8 months of 2022. BKX index decreased by 2.4% MoM in August 2022 vs -4.2% MoM of SPX index. Absolute August performance was -0.5 std from the mean monthly performance, and it was in the bottom 28% of absolute monthly performance in the index history. 

investment, banks;

Oil Market Report - July 2022

Crude oil prices surged further in June 2022 for the second consecutive month, with ICE Brent and NYMEX WTI first-month contracts averaging nearly 5% higher on a monthly average basis despite a relatively volatile month and tumbling financial markets. The market was driven by a strong supply/demand outlook in the short term and geopolitical developments in major producing regions. The ICE Brent front-month contract increased by $5.54 in June 2022, or +4.9%, to average $117.50 / bbl, and NYMEX WTI front-month contract rose by $5.08, or +4.6%, to average $114.34 / b. 

oil, investment