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Oil Market Report - November 2020

EXECUTIVE SUMMARY

Crude oil prices retreated again in the month of October 2020 for the second consecutive month, as the expected healthy recovery of global oil demand in 4Q20 eased amid a severe second wave of COVID-19 infections in several regions around the world. Moreover, demand for crude oil was subdued, as global refinery throughputs remained low. On the other hand, investors were pricing expectation of higher oil supply in the coming months as well as the steady recovery of Libyan crude production that reached more than 1 mln bbl / d, according to the Libyan National Oil Corporation.

Crude oil prices remained range-bound during the first three weeks of October 2020, finding support from temporary supply disruptions. Indeed, oil prices rose after several Norwegian offshore fields were shut in following a strike, which threatened about 25% of the country’s oil and gas production, according to the Norwegian Oil and Gas Association. In the Gulf of Mexico, a series of tropical storms and hurricanes have led companies to evacuate and shut down oil and gas platforms in several regions. According to the US Bureau of Safety and Environmental Enforcement, offshore companies have shut down about 1.7 mln bbl / d, or about 92%, of oil production in the Gulf of Mexico due to Hurricane Delta. Oil prices rose further on supportive data related to oil demand from the world’s second and third largest consumers. China’s official data showed robust economic indicators with the country’s crude oil imports in September rising by 5.5% compared to August, settling at an average of about 11.8 mln bbl / d. Official data in India also showed a gradual recovery in oil demand, which was reflected in gasoline and gasoil consumption.

However, oil prices sharply dropped in the last week of October 2020, falling about 10%, as the COVID-19 daily cases hit records in several regions, specifically in Europe and in the US. This led the largest two economies in Europe, France and Germany, as well as other countries, to renew tighter mobility restrictions and national lockdowns. The new, tighter measures to contain the rapid spread of the pandemic have raised concerns about the pace of global oil demand recovery in 4Q20 and next year. Moreover, the risk premium to oil supply that supported oil prices in the first part of October faded, as investors observed the steady recovery of Libyan crude oil production, and awaited decisions on oil supply from Doc producers starting in January of next year.

Nevertheless, the situation on crude oil market completely reversed during the first half of November 2020, when oil prices soared by more than 20% from late October lows. Oil prices jumped by nearly 10% a day on November 09, 2020 after Pfizer and BioNTech said that their mRNA-based vaccine candidate was found to be more than 90% effective in preventing COVID-19. Hopes that a vaccine could soon allow a return to pre-coronavirus way of life and travel completely offset immediate concerns over growing virus lockdowns. Oil prices in November were also supported by a weakening U.S. dollar and Joe Biden’s victory in the U.S. election, which boosted appetite for riskier assets and removed the election uncertainty from the market. All in all, crude oil prices barely changed within the period under report, although the market was extremely volatile inside the period. To speak in numbers, the ICE Brent spot price rose by just 0.3% over last four weeks and ended the period under report at $42.0 / bbl. The same time, the NYMEX WTI spot price, on the contrary, showed a slightly negative dynamic and declined during the same period of time by insignificant 0.8% to $40.1 / bbl, as of November 20, 2020.

Total output of crude oil in the OPEC as a whole in the month of October 2020 increased modestly by 470 thsd bbl / d, or +1.9% MoM, comparing to the volume of the previous month and reached the highest print over last 6 months. Nevertheless, in absolute terms a total volume of crude oil production by OPEC states in the month under review has remained depressed by historical standards. Monthly dynamics of crude oil production in different OPEC countries were again dissimilar in October 2020. The most material rise of production of crude oil in the month under review was exhibited in Libya, as warring parties in the countries agreed an historic ceasefire on October 23, 2020 after many months of intensified civil war. The peace talks between supporters of the UN-recognized Government in Tripoli and forces of the rival administration of the self-styled Libyan National Army (LNA), led by Commander Khalifa Haftar, continued during the following weeks. So, the country received an opportunity to begin to recover its crude oil production after the agreement was signed. An extraction of crude oil in Libya in October jumped for the 2nd month in a row and exploded by another 300 thsd bbl / d, or +200% MoM, in compare to the level of September 2020. Nigeria also experienced a rapid expansion of its crude oil production in October 2020 relative to the prior month. An oil output in the country grew considerably by 120 thsd bbl / d, or +8.1% MoM, the highest monthly rate of growth within last 3 years. Iraq demonstrated a tangible expansion of extraction of crude oil in October 2020 as well. The production in the country grew in the course of 2 months in a row and expanded in October by another 160 thsd bbl / d, or +4.3% MoM.

Total oil production worldwide in October 2020 continued to grow for the 4th month in a row and expanded relative to September 2020 level by another 401 thsd bbl / d, or +0.5% MoM. Nevertheless, in absolute terms the volume of total oil production around the globe in the month under consideration remained very humiliated from a retrospective point of view. From a year-over-year standpoint performance of total oil output around the globe in October 2020 went on to be very discouraging thanks to a preceding collapse of production. More exactly, a global output of oil in October 2020 was 8.26 mln bbl / d lower than it was in the same month of the previous year, or -8.9% YoY. The majority of Non-OPEC oil producing countries demonstrated a positive movement of production of crude oil in October 2020 as contrasted with level of September 2020. In absolute terms, the most rapid expansion of crude oil production in October 2020 was recorded in Canada, where an output of crude oil production expanded by impressive 7.1% MoM, or +284 thsd bbl / d. Meanwhile, on a relative basis, the most considerable increase of crude oil output in the month under review was registered in Norway, where a production of oil went up significantly by 12.4% MoM, or +184 thsd bbl / d, relative to the level of the prior month. The United Kingdom also exhibited a considerable expansion of its oil output in the month of October 2020 in monthly terms. An oil production in the country grew throughout the second consequent month and increased by another 86 thsd bbl / d, or +11.2% MoM, the peak growth rate over last 12 months. Such countries as Colombia, Malaysia and other Ex-USSR states also demonstrated a moderate expansion of production of crude oil in the month of October 2020 from a monthly change standpoint. On the other hand, there were a number of major oil producer among non-OPEC states that reduced their production levels in October 2020 in contrast to the previous month. In particular, such countries as Mexico, Brazil and China experienced a reasonable fall of output of crude oil in the month of October 2020 relative to the month of September 2020. However, the most material decrease of oil production in October among all Non-OPEC oil producing countries was experienced in the USA. To provide more details, a crude oil output in the USA contracted by 1.1% MoM, or -110 thsd bbl / d, in contrast to the volume of September 2020.

In October 2020, total production of oil in the USA felt a little bit by 75 thsd bbl / d, or -0.7% MoM, in compare with the level of September 2020 and remained close to the lowest level since the 1st quarter of 2018. In absolute terms a volume of crude oil output in the USA continued to fluctuate around the level of 10.5 mln bbl / d for the 3rd month in a row. It is worthwhile to remind that just before the start of COVID-19 pandemic crude oil production in the USA had reached a new historical maximum marginally above 13.0 mln bbl / d. Comparing to that record level, crude oil output in the country in September 2020 was lower by 2.5 mln bbl / d, or -19.2%. From a year-over-year standpoint, total oil production in the USA in October 2020 again was significantly lower than it was one year ago. The figure decreased by 16.7% YoY, or -2.1 mln bbl / d, relative to the level that was observed in October 2019. In yearly terms, total oil production in in the month of October continued to go down over 6 months in a row.

In the month of October 2020, a cumulative shale oil production in the USA declined marginally by 35 thsd bbl / d, or -0.4% MoM, relative to the prior month. In the month of October a production of shale oil in the country decreased within 2 months in a row. The same time, a total shale oil production in the USA shrank in October 2020 by 1.19 mln bbl / d, or -12.9% YoY. From a standpoint of an annual change, a shale oil production went down over 2 quarters in a row. All the deposits experienced a monthly contraction of shale oil output in October 2020 as compared to the level of the month of September, except for Eagle Ford. The most tangible in absolute terms decrease of production of shale oil in October 2020 was registered on Bakken deposit, where an output of shale oil contracted by 23 thsd bbl / d, or -1.7% MoM.

The International Energy Agency (IEA) released detailed statistics on consumption of crude oil and refined oil products worldwide for the 3rd quarter of 2020 in its monthly report for November 2020. According to the report, a consumption of oil worldwide in the 3rd quarter 2020 skyrocketed by 10.5 mln bbl / d, or +12.7% QoQ, in compare with the volume of the disastrous 2nd quarter of 2020, when a global oil consumption experienced the sharpest drop on records. So, it is not a surprise that during the following 3rd quarter a global oil demand also exhibited the highest quarterly growth rate on records. All in all, despite to a powerful recovery of oil demand in all regions of the world, a global consumption of oil in the 3rd quarter of 2020 remained significantly lower than it was one year ago. To be more precise, a consumption of oil around the world tumbled in the 3rd quarter of 2020 in contrast to the 3rd quarter of 2019 by 7.25 mln bbl / d, or -7.2% YoY. The quarter under review became the third quarter in a row of falling global demand for oil in yearly terms. The same time, the IEA revised down its near-term global demand outlook, citing weak historical data and the resurgence of Covid-19 in Europe and the United States. According to the agency, the recent announcements of lockdowns and other containment measures in many countries have led to significantly lower estimates for global oil demand. Revised data for the third quarter of 2020 have reduced demand by 0.4 mln bbl / d. Early data and estimates for the fourth quarter, also impacted by a mild start to the northern hemisphere winter heating season, have cut demand by 1.2 mln bbl / d versus the previous assessment. The lingering impact of the pandemic is likely to reduce demand by 0.7 mln bbl / d in the first quarter of 2021 as well. Nearly all of these massive reductions are found in OECD countries. For the non-OECD world, the IEA have actually raised its demand estimates mainly due to improved expectations in China and India. In 2020, global oil demand will be 91.3 mln bbl / d, which is 8.8 mln bbl / d lower than in 2019 and below the average level for 2013. In 2021, demand will recover by 5.8 mln bbl / d to 97.1 mln bbl / d, about 3 mln bbl / d below the pre-COVID level in 2019.

Total commercial stocks of crude oil and oil products in OECD states in August 2020 finally reversed to the downside and demonstrated a mild contraction of 22.1 mln bbl, or -0.7% MoM, relative to the volume of the previous month. It is worthwhile to mention that total commercial stocks of oil in OECD states decreased for the first time in August 2020 since the start of COVID-19 pandemic in March 2020. On a year-over-year basis, total oil stocks in OECD countries apparently kept on to show a strong positive dynamic due to a massive build of the stockpiles during spring months. To be more precise, total oil stocks in the OECD in August 2020 were 216.5 mln bbl, or +7.3% YoY, higher than they were one year ago in August 2019. According the preliminary IEA data, total OECD industry stocks of crude oil and oil products fell for the second consecutive month in September 2020 by 19.7 mln bbl (0.66 mln bbl / d) to 3 192 mln bbl, and were 225 mln bbl above their five-year average. The same time, total OECD industry crude stocks were only 51 mln bbl below their peak level in May 2020, while refined oil product stocks, following six consecutive months of builds, finally fell in September. In 3Q20, observed global stocks fell by 0.8 mln bbl / d. However, first observed data for October 2020 show crude stocks falling 8.4 mln bbl in the US, 8.3 mln bbl in Europe and 1.2 mln bbl in Japan.

Total commercial inventories of crude oil in the USA during the month under review also continued to normalize for the 4th month in a row, although at a moderate pace, and went down by another 8.0 mln bbl, or -1.6% MoM, comparing to the level of September 2020. Despite to the most recent wave of the COVID-19 epidemic with a new spike of new daily cases far beyond 150k, it seems that an economic activity within the country proceeded to improve in October 2020 as well. Therefore, demand for oil products in the USA also continued to strengthen. On a year-over-year basis, total stockpiles of crude oil in the USA in October 2020 built up moderately by 45.6 mln bbl, or +10.4% YoY. From a yearly performance point of view, the stocks of crude oil in the USA experienced a growth throughout the 8th consequent month. A monthly dynamic of crude oil stocks in the Cushing storage in Oklahoma (the basis for NYMEX WTI crude oil futures) in October 2020 again was not homogeneous with monthly dynamic of total commercial inventories of crude oil in the USA. Inventories of crude oil in the Cushing storage ramped up in the month of October 2020 by 8.7% MoM, or +4.9 mln bbl, relative to the volume of September 2020. The figure moved close to the highest mark for this month of a year over last 5 years. Relative to pre COVID-19 level (as of the end of February 2020), inventories of crude oil in the Cushing storage in October 2020 was nearly 65% higher.

Total floating stocks of crude oil in the world as a whole in the month of October 2020 proceeded to normalize for the 4th consecutive month after their rapid expansion during spring months and June 2020 as well. The figure went down by another 3.5 mln bbl, or -2.5% MoM, in contrast to the volume of the previous month. In absolute terms, the volume of crude oil stocks that held on floating storages globally decreased somewhat below the threshold of 140 mln bbl. However, it is worthwhile to remind that in pre-COVID times a total volume of floating stocks of crude oil usually fluctuated in a range of 50-70 mln bbl that is roughly twice lower than the current level. That’s why a total volume of crude oil that held of floating storages in the month of October 2020 again was much higher than it was one year ago in October 2019. To provide more numbers, the stocks jumped by +106% YoY, or 71.0 mln bbl, so the figure kept on to increase in yearly terms throughout 10 months in a row.

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