HomeResearch and NewsOil Market Report - May 2020

Oil Market Report - May 2020


An unprecedented global Crude oil futures prices extended sharp declines in April 2020 amid a strong contraction in the global economy and oil demand due to the impact of the COVID-19 pandemic. In April 2020, the ICE Brent contract plunged by 21.0% mom to average $26.63 / bbl, while the NYMEX WTI contract lost 45.2% of its value to average $16.70 / bbl amid bearish market sentiment. Crude oil spot prices recorded a sharp monthly drop on a continuing growing oil surplus in the spot market and accumulating unsold cargoes, as refiners heavily cut runs due to plunging oil demand and global oil stocks rose both onshore and offshore. Crude oil sellers continued to heavily discount their unsold crude oil cargoes for April and May delivery to find buyers, which resulted in swift declines in crude differentials in all regions. Thus, North Sea Dated Brent settled at $13.34 / bbl on 21 April, hitting its lowest point since March 1999. Sport crude prices continued to decline more than futures, with the spread between North Sea Dated and the nearest ICE Brent reaching $7.80 / bbl on average in April 2020, compared with $2.02 / bbl in March 2020 and only 3¢ / bbl in February 2020.

In an unprecedented event, the NYMEX WTI prompt contract for May 2020 plunged to a historic low on 20 April and traded at a negative price for the first time ever, settling at minus $37.63 / bbl. This highlighted how investors and traders can react when logistical oil limits are severely tested. It is important to highlight, however, that it is still unclear whether that historic drop was only due to fundamentals at the landlocked Cushing delivery hub. The price decline came one day before the expiry of the front-month May NYMEX WTI contract on 21 April, amid low liquidity and a delivery problem for physical May crude at the landlocked Cushing trading hub, which is the delivery point for US crude contracts. However, on the expiry date the NYMEX WTI May contract recovered to positive territory and settled at $10.01 / bbl.

Nonetheless, in late April, oil futures prices recovered from low levels, buoyed by optimism about the start of production adjustments on 1 May and expectations that major oil producers would accelerate efforts, in addition to signs that lower production in several countries, such as the US and Canada, could slow a growing global supply overhang. At the same time, signs of a recovery in activity in some countries like China, and the announcement of plans to start lifting COVID-19 restrictions on some businesses in several countries and in some US states added support. A rapid upward spur in crude oil prices gained momentum in the first weeks of May 2020 as well, along with easing of COVID-19 containment measures in the most of developed countries and growing optimism regarding started economic recovery. So, if we speak exactly about the period under report, then crude oil prices demonstrated one of the most powerful recovery rallies over the history with the ICE Brent spot price gaining more than 30% over last 4 weeks and closing the period above $30 / bbl, while the NYMEX WTI spot price exploded by more than 60% during the same period of time to nearly $30 / bbl.

Total crude oil output by the OPEC as a whole in April 2020 skyrocketed in compare to the volume of March 2020 as the old OPEC+ agreement to curb oil production expired on April 1, so Saudi Arabia and some of its allies had started to pump as much oil as they could in attempt to punish Russia for the breakdown of the agreement. The production of the cartel as a whole in April 2020 rose by the highest monthly rate over decades; an expansion of the output within the month under review was equal to 1.73 mln bbl / d, or amazing +6.0% mom. However, even so strong production growth on a month-over-month basis didn’t change the picture much from a longer-term standpoint. Comparing to one year ago level of production, the OPEC’s output in April 2020 was lower by 320 thsd bbl / d, or -1.0% yoy. So, the production level had just returned to a lower border of 5-year range of OPEC output for this month of a year. Moreover, as the OPEC+ has forged a historic output deal to cut production by 9.7 mb/d from an agreed baseline level, effective since May 1, the cartel’s output of crude oil in May 2020 and following months will be again significantly lower than the April’s level.

Total oil production worldwide in March 2020 increased moderately by 1.09 mln bbl / d, or +1.1% mom, in compare with the volume of February 2020, in accordance to the EIG data. On a yoy basis, a growth of total oil output around the globe in the month under review was also positive, and even more rapid relative to the monthly one. To speak in numbers, global oil production in March 2020 was 1.9 mln bbl / d, or +2.0% yoy, higher than it was one year ago in March 2019.  The most considerable drop of crude oil production on monthly basis among non-OPEC countries in March 2020 was recorded in Norway, where the output tumbled by 156 thsd bbl / d, or serious -8.9% mom. Brazil, Mexico and other ex-USSR states were also among the countries with falling monthly output of crude oil in the month under consideration. To show the picture in numbers, monthly rates of crude oil production in these three states were equal to 66 thsd bbl / d, or -2.1% mom, 46 thsd bbl / d, or -2.7% mom, and 76 thsd bbl / d, or -2.9% mom, respectively. On the other hand, the most material growth of crude oil production among non-OPEC states in absolute terms in March 2020 relative to February 2020 took place in the USA, where an output of crude oil grew up by 58 thsd bbl / d, or +0.5% mom. China was another non-OPEC state that pumped more oil in the month under review than it did in the previous month. Monthly growth rate there was equal to +37 thsd bbl / d, +1.0% mom.

Total crude oil production in the USA in April 2020 tumbled by material 775 thsd bbl / d, or sizable 6.0% mom, in contrast to the volume of March 2020 as US oil producers have begun to react on collapse of oil prices and reduce their production targets. As prompt prices of some local US low-quality grades of oil turned to negative area in the 2nd half of April, it is little wonder that US oil companies started to decline their output before the date when the new OPEC+ agreement to curb oil production becomes effective. The fact that some US energy companies filed for Chapter 11 during the month under also took its toll on the overall production level in the country. A cumulative production of shale oil in the USA in April 2020 also dropped significantly along with the overall number, in compliance with the most recent data provided by Rystad Energy. Monthly rate of decline was equal to 436 thsd bbl / d, or hurting 4.7% mom, comparing to the value of the previous month. However, in comparison to one year ago figures, total production of shale oil in the USA in April 2020 was considerably higher; a rate of growth was equal to 660 thsd bbl / d, or sound +8.0% yoy.

As the outlook has improved somewhat the IEA revised its demand forecasts upward in May report. There are two main reasons for better outlook: the easing of lockdown measures and – more important – steep production declines in non-OPEC countries alongside the commitments made by the OPEC+ agreement. According to the most recent IEA assessments, better than expected mobility in OECD countries in April and the gradual easing of lockdown measures in May led to an upward adjustment of 3.2 mln bbl / d to its global 2Q20 demand number; but the figure is still sharply down on last year by 19.9 mln bbl / d. Although expectations for the 2nd half of 2020 are slightly weaker than previously forecasted, IEA outlook for 2020 as a whole shows a demand fall of 8.6 mln bbl / d, that is 0.7 mln bbl / d more than its initial estimation. Obviously, a resurgence of COVID-19 is a major risk factor for current IEA demand forecast.

Total commercial stocks of oil and oil products in OECD states in February 2020 declined by 35.5 mln bbl or 1.2% mom in compare to the volume of January 2020, according to the IEA data. Despite to the fact that COVID-19 outbreak had already stunned Chinese economy during the month under consideration, the aggregate volume of commercial oil inventories in OECD countries dropped to the lowest level over last 11 months. However, on year-over-year basis the decline of stocks was really minor, the figure decreased by just 2.8 mln bbl relative to the level of February 2019, or insignificant -0.1% yoy. Nevertheless, according to the preliminary IEA data for this month, the volume of total oil and oil products inventories in OECD states rose by 68.2 mln bbl to 2 961 mln bbl. Total OECD stocks stood 46.7 mln bbl above the five-year average and, due to the weak outlook, now provide an incredible 90 days of forward demand coverage.

Total commercial inventories of crude oil in the USA in April 2020 really skyrocketed as the containment measures undertaken to fight the COVID-19 spreading in the country nearly stunned the US economy. To speak in numbers, the aggregate volume of commercial crude oil inventories in the USA within the month under review exploded by 58.4 mln bbl, or +12.5% mom, in compare with the volume of March 2020. It was the highest monthly rate of inventories build-up in the country, both in absolute and in relative terms, for at least last 10 years. The volume of stocks also had reached the highest level for that month of a year over the whole history of observations and the 2nd highest level over the whole history of observation in general. On a year-over-year basis, the volume of crude oil inventories in the USA in April 2020 jumped by very considerable 81.8 mln bbl, or shocking +18.3% yoy, in compare with the volume of April 2019.

Inventories of crude oil in the Cushing storage in Oklahoma (the basis for NYMEX WTI crude oil futures) in April 2020 also skyrocketed. The volume of stocks in the storage exploded by another 20.6 mln bbl, or amazing +48.0% mom, and reached a figure of 63 mln bbl. Relative to the end of February level, the inventories here rose nearly 70%. As for yearly performance, then the volume of stocks in the Cushing storage in April 2020 was by 16.7 mln bbl, or impressive +35.9% yoy, higher than it was one year ago. But what is much worse, the level of stocks in April 2020 moved rather close to the level of full capacity of the Cushing storage that is estimated as equal to 76 mln bbl. The end of month crude oil stocks number is equal to approximately 83% of the Cushing full capacity, the level that looks not very dangerous. However, in the 2nd half of the month the volume of stocks in the Cushing storage exceeded 70 mln bbl, so the fears of capacities overflow among traders was very strong.

Total floating inventories of crude oil around the globe continued to go up in April 2020 and really skyrocketed within the month relative to the level of the previous month. To be specific, the volume of the floating stocks in April 2020 expanded more than 2.5-fold comparing to the volume of March 2020, the growth rate was equal to 98.3 mln bbl, or unbelievable +170% mom. In absolute terms, the volume of the stocks by the end of the month exceeded the threshold of 150 mln bbl and reached the level of 156 mln bbl that more than 50 mln bbl more than the previous historical maximum in the Vortexa dataset. The most significant monthly expansion of crude oil inventories that held of floating storages in absolute terms in April 2020 was recorded in the Asia region, where the volume of floating inventories grew up by sizable 39.2 mln bbl relative to the level of the previous month, or nearly +140% mom.

 Download PDF

oil, investment

Read more

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

Banking Sector Monthly Report - June 2022

US banks underperformed the broad market significantly in June 2022, for the third time over the last four months. BKX index ended just two months in the green in the first half of 2022. Thus, BKX index tumbled by 13.3% MoM vs -8.4% MoM of SPX index. Absolute June 2022 performance was -2.0 std from the mean monthly performance, and it was the 9th worst absolute monthly performance in the index history. 

investment, banks;

Oil Market Report - June 2022

The rally on crude oil markets resumed an upward trend in May 2022 after a stall in April 2022, with major futures contracts ICE Brent and NYMEX WTI showed positive monthly dynamics four times in the last five months. Crude oil prices were mainly driven by tightening oil product markets, near-term global crude supply risks amid continued geopolitical tensions in Europe, and the prospect of demand recovery in China after authorities started to gradually ease COVID-19-related lockdown measures, which could boost the country's oil demand. 

oil, investment