Crude oil prices soared further in March 2022 extending the previous month’s large gains.
EXECUTIVE SUMMARY
Crude oil prices soared further in March 2022 extending the previous month’s large gains. The market continued to be driven by rising concerns about a potential large oil supply shortage amid escalating geopolitical tensions in Eastern Europe, as well as supply disruptions in the Caspian.Oil futures prices witnessed severely elevated volatility due to uncertain oil supply and demand outlooks, recording $20 intraday changes on March 9, 2022, as investors were extremely sensitive to media reports and any new developments related to geopolitical developments in Eastern Europe and their impact on oil market fundamentals. High market volatility coincided with a sharp drop in open interest volumes of ICE Brent and NYMEX futures contracts. The ICE Brent front-month futures contract rose by $18.36 in March 2022, or +19.5% MoM, to average $112.46 / bbl, and NYMEX WTI increased by $16.63, or +18.1% MoM, to average $108.26 / bbl.Year-to-date, ICE Brent was +$36.58, or +59.7%, higher at $97.90 / bbl, while NYMEX WTI was +$36.87, or +63.4%, higher at $95.01 / bbl, compared with the same month a year earlier. The spot market witnessed strong buying interest in March 2022 as well, specifically in northwest Europe, as buyers were looking for alternative crude to Urals, which pushed the value of North Sea Dated significantly higher compared to other benchmarks. The crude differentials of the North Sea’s alternative crudes, such as Forties, rose to record high levels in March on strong demand and limited supply.
However, crude oil benchmarks settled much lower during the first decade of April 2022 as the US and the members of the International Energy Agency (IEA) agreed for the coordinated largest-ever oil reserves release, designed to provide relief to an already tight oil market that’s facing heightened uncertainty amid the multitude of repercussions stemming from sanctions and embargoes targeted at Russia by the international community and consumer boycotts. Thus, the US announced a release of 1.0 mln bbl / d of crude oil for 6 months from May 2022, which at 180 mln bbl is the largest release ever from the U.S. Strategic Petroleum Reserve (SPR). The IEA member countries agreed to tap their emergency reserves for the second time in the space of a month, this time to add another 120 mln bbl.So, crude oil prices had eased by nearly $10 / bbl following announcements of the stock releases, with the ICE Brent front-month contract sank below $96.0 / bbl on April 11, 2022. But the situation reversed completely in the middle of the month with crude oil prices rebounded sharply during the second decade of April 2022 as the European Union’s phased-in ban on Russian oil and gas exports returned back to the radaramid worsening of the conflict in Ukraine and the IEA said that OPEC+ members provided only 10% of their promised supply increases last month. Moreover, two Libyan ports have been forced to stop loading oil after protests against Prime Minister Abdul Hamid Dbeibah, with output halted at El Feel, a 65 thsd bbl / d field.
Despite to wild swings on the oil market, witnessed during recent weeks, major crude oil benchmarks provided only a humble performance over the period under report. Nevertheless, both ICE Brent and NYMEX WTI front-month contracts again ended the period in the green zone, for the 4th month in a row, though the pace of growth was minor, comparing to the 4 weeks prior. The ICE Brent active contract rose by $5.3 / bbl in contrast with the level of March 18, 2022, or +4.9%, and ended the period under report slightly above $113 / bbl as of April 19, 2022. The NYMEX WTI near-month contract showed even less profound growth and climbed up by only $2.69 / bbl, or +2.6%, over the same period of time, to reach $107.4 / bbl as of April 19, 2022.
Total crude oil production of the OPEC went up moderately in March 2022 by 90 thsd bbl / d on a monthly basis, or +0.3% MoM, though the OPEC+ agreed to extend its crude oil output by another 400 thsd bbl / d during the month,along with earlier supply cuts reduction. Nevertheless, OPEC total production of crude oil continued to build up within consequent 11 months and in March 2022 went up to its new peak print of 28.60 mln bbl / d since April 2020. In yearly terms, total crude oil output of the cartel again provided a very strong growth, equal to +3.28 mln bbl / d relative to the level of March 2021, or almost +13.0% YoY. The output proceeded to expand on an annual basis over consequent 11 months. The strongest absolute monthly growth of the production in the month under review was recorded in Saudi Arabia. Thus, the output in the country showed an increase of 100 thsd bbl / d in compare to the previous month, or +1.0% MoM. In relative terms, the most rapid monthly expansion of crude oil production in March 2022 was experienced in Iran, where the output increased modestly by 40 thsd bbl / d relative to the volume of February 2022, or +1.6% MoM. Crude oil output in Iran went up within the third consequent month and ran to its new record high of 2.59 mln bbl / d within last 2 years. On the other hand, the most considerable monthly contraction of the output in the month under review was registered in Libya.The extraction of crude oil there dropped by 70 thsd bbl / d in contrast with the volume of February 2022, or -6.3% MoM.
On its most recent 27th OPEC and non-OPEC Ministerial Meeting, which was held on March 31, 2022, the OPEC+ finally decided to speed-up its supply cuts reduction process, though the additional upward adjustment was really minor, comparing to the hopes of the market. Thus, the OPEC + reconfirm the baseline adjustment, the production adjustment plan and the monthly production adjustment mechanism approved at the 19th OPEC and non-OPEC Ministerial Meeting and the decision to adjust upward the monthly overall production by 0.432 mln bbl / d for the month of May 2022, in contrast with 0.4 mln bbl / d adjustment during several preceding months. The other news from the Meeting was the replacement of the International Energy Agency (IEA) with Wood Mackenzie and Rystad Energy as secondary sources used to assess OPEC Member Countries crude oil production. The next 28th OPEC+ meeting is scheduled for May 5, 2022. So, the OPEC+ continued to nearly ignore market fears of possible supply outages on the global crude oil market due to Russia-Ukraine conflict that has already resulted in severe logistic problems and certain restrictions on oil and gas export from Russia. On one hand, it was attributed to the fact that Russia is one of the major oil producers within the group. On the other hand, it was attributed to the fact that all the OPEC+ members benefit heavily from record crude oil prices which continued to trade above $100.0 per bbl.
Total oil production around the globe barely changed in March 2022 relative to the level of February 2022 and decreased marginally by 72 thsd bbl / d, or -0.1% MoM. The volume of the output remained close to the threshold of 100.0 mln bbl / d and only slightly lower than the pre-pandemic level of February 2020. In yearly terms, the production in the month under review again was considerably higher than it was one year ago, but the speed of annual growth decelerated tangibly comparing to preceding months. The expansion was equal to 5.74 mln bbl / d as against the level of March 2021, or +6.1% YoY, the 12th consecutive month of widening on a yearly basis. Relative to the pandemic trough, recorded in May 2020, total production of oil worldwide rose in March 2022 by roughly 11.18 mln bbl / d, or +12.7%. On a single country level, monthly performance of oil output in different non-OPEC countries wasn’t homogeneous in March 2022 as contrasted with February 2022. On one hand, the most formidable monthly growth of oil production within the month was registered in the US. The output there jumped by 568 thsd bbl / d relative to the month prior, or +2.9% MoM, the second month of expansion in a row. In relative terms, the most rapid monthly increase of oil production was recorded in Brazil, where the output expanded in March 2022 by 190 thsd bbl / d as against with the level of February 2022, or solid +5.8% MoM. On the other hand, the most significant monthly fall of oil output in the month under review was recorded in other ex-USSR states, mainly due to the damage of CPC marine terminal (a major export terminal for Kazakhstan) in the second half of the month. In result, aggregate oil output of ex-USSR countries excluding Russia tumbled in March 2022 by 210 thsd bbl / d in comparison with the level of February 2022, or severe -6.9% MoM, the third consequent month of decline. China also demonstrated a strong monthly decrease of its output of crude oil in March 2022. From a monthly performance standpoint, the output in China contracted by 2.3% MoM, or -118 thsd bbl / d. It was the second month of negative dynamics in a row and the worst monthly drop of the output in the country within preceding 3 years.
However, primary domestic oil production in the US, counted as the sum of crude oil and NGLs production, reversed to the downside after 5 consecutive months of expansion and decreased a little bit by 10 thsd bbl / d relative to the volume of the previous month, or -0.1% MoM, according to the weekly US DOE data, though the dynamics of the overall oil output in the country during the month was strongly positive. The volume of the output in the country remained close to its highest level over recent 2 years, but nearly 640 thsd bbl / d lower as against to the volume of production in last pre-pandemic month, namely February 2020. However, in yearly terms, primary domestic oil production in the US again delivered strongly positive dynamics in March 2022. To speak in more details, it skyrocketed by 1.32 mln bbl / d in compare to the one year ago level, or +8.3% YoY. From a yearly performance point of view, US primary oil production continued to grow within consequent 11 months. The monthly decrease of the primary domestic oil production in the US in March 2022 was fully attributed to the decline of NGLs production, while the output of crude oil in the country, on the contrary, provided a certain improvement relative to the previous month.
Total output of shale oil in the US continued to grow in March 2022 and widened further by 36 thsd bbl / d in comparison with the volume of the previous month, or +0.4% MoM. So, the output of shale oil in the country reached its new highest level since March 2020, equal to 8.71 mln bbl / d. On an annual basis, the output of shale oil in the US delivered a much stronger expansion in the month under consideration. The yearly growth was equal to 688 thsd bbl / d, as compared to the level of March 2021, or +8.6% YoY. It was the 11th consequent month of shale oil production increase in the US in yearly terms. Despite to the monthly growth of total shale oil production in the US in March 2022, the majority of shale deposits in the country experienced negative changes of their output as compared with the volumes of February 2022. The only shale field in the US, which produced materially more oil in March 2022 relative to the month prior, was Permian, where the production expanded by 104 thsd bbl / d over the month, or +2.0% MoM. The output on the field increased over consequent 2 months and in March 2022 came up its new maximum print of 5.19 mln bbl / d on records.
The IEA released detailed statistics on consumption of crude oil and petroleum products around the world for the 4th quarter of 2021 during the period under report. Total consumption of crude oil and petroleum products worldwide continued to expand for the third quarter in a row and strengthened during the quarter by another 1.64 mln bbl / d as against to the level of quarter prior, or +1.7% QoQ. For the first time over last two years, the global demand climbed above the threshold of 100 mln bbl / d and nearly reached its highest volume on records of 100.6 mln bbl / d that was witnessed during the 2nd half of 2019 year. It means that the global demand for oil finally recovered completely after the pandemic related shock. In yearly terms, total consumption of oil and oil products around the globe also showed a strong growth in the 4th quarter of 2021 and improved by 5.31 mln bbl / d in compare to the level of the 4th quarter of 2020, or +5.6% YoY, the third consequent quarter of expansion.
According to the most recent IEA monthly report, severe new lockdown measures amid surging COVID-19 cases in China have led to a downward revision in agency’s expectations for global oil demand in 2Q22 and for the year as a whole. Weaker-than-expected demand in OECD countries at the start of the year added to the decline. As a result, IEA’s estimate for global oil demand has been lowered by 260 thsd bbl / d for the year versus its last month’s report. So, the demand is now expected to average 99.4 mln bbl / d in 2022, up by 1.9 mln bbl / d from 2021. Lower demand expectations and steady output increases from Middle East OPEC+ members along with the US and other countries outside the OPEC+ alliance should bring the market back to balance.
Total commercial stocks of crude oil and petroleum products in OECD states continued to deplete in January 2022 for the 12th consequent month and lost another 21.9 mln bbl relative to the level of December 2021, or -0.8% MoM. The volume of the inventories sank to its lowest level of 2.62 bn bbl since March 2014, by that remaining deep below the average and minimal levels for the corresponding month of a year over last 5 years. On an annual basis, total commercial stocks of crude oil and petroleum products in OECD states showed strongly negative dynamics in January 2022 as well, the same as during several preceding months. The volume of the stockpiles tumbled by 416.3 mln bbl in compare to one year ago level, or -13.7% YoY, a certain speed-up of the decline relative to the December 2021 level.
According the preliminary IEA assessments, global oil inventories continued to decrease in February 2022 for 14 consecutive months, with February stocks 714 mln bbl below the end-2020 level and OECD countries accounting for 70% of the decline. OECD total crude oil and petroleum products fell further by 42.2 mln bbl in February 2022, nearly double the seasonal trend. However, the early data show a build in OECD total stocks of 8.8 mln bbl for March 2022.
Total stockpiles of crude oil and petroleum products in the US proceeded to went down for the second month in a row and declined in March 2022 by 16.23 mln bbl in compare to the volume of February 2022, or -2.1% MoM. The stockpiles dropped to their record low throughout last 5 years equal to 762.3 mln bbl and sank well below the lower bound of the range for the corresponding month over recent 5 years. In yearly terms, total inventories of crude oil and petroleum products in the US demonstrated a much more significant depletion in the month under review, along with preceding months, and tumbled by a sizeable amount of 114.2 mln bbl, or serious -13.0% YoY. The inventories in the US kept on exhausting on an annual basis for 12 months in a row. Recall that the total stockpiles of crude oil and oil products in the US reached their all-time high in May-June of 2020, when the volume of the stocks was equal to 964 mln bbl. As compared to that level, the inventories were lower in March 2022 by 202 mln bbl, or almost -21.0%.
Crude oil inventories in the Cushing storage in Oklahoma (the basis for NYMEX WTI crude oil futures) reversed to the upside in March 2022 after two consequent months of decline and widened by 1.4 mln bbl in compare to the level of February 2022, when the stocks sank to their lowest level since July 2018 equal to just 22.8 mln bbl, or +6.3% MoM. Nevertheless, the volume of the stocks in the storage remained well below the lower border of the range for the corresponding month of a year over last 5 years. Recall that in recent 20 years there was the only month, when the inventories in the Cushing storage tumbled below the threshold of 20.0 mln bbl, namely July 2014. And the current level of the stocks is only about 20% above this threshold. However, on an annual basis, crude oil inventories in Cushing delivered a very steep drop in the month under review and tumbled by 22.8 mln bbl relative to the one year ago level, or -48.5% YoY, a certain deceleration of the decline relative to the previous month. March 2022 was the 12th month in a row of Cushing stocks depletion in yearly terms.
Total floating inventories of crude oil worldwide declined in March 2022 by 2.8 mln bbl in contrast with the volume of the previous month, or -3.1% MoM, and for the first time in recent 9 months sank below the threshold of 90.0 mln bbl. Nevertheless, the world floating oil stockpiles remained somewhat above the average level for the corresponding month of a year over last 5 years. The performance of total offshore stockpiles of crude oil around the globe on an annual basis was negative in March 2022 as well. The stocks depleted by 12.3 mln bbl in comparison to the level of March 2021, or -12.2% YoY. The monthly drop of the world total inventories was mainly attributed to the severe depletion of the stocks in the Middle East Gulf region. Floating stockpiles of crude oil in the region experienced in March 2022 a sharp fall of 4.1 mln bbl, or -45.8% MoM, after comparable rapid growth during the previous month. Due to so considerable monthly contraction of the inventories, the share of the region in global floating crude oil stockpiles dropped sharply as well within the month by 390 bps and went down to 5.4%. In result, the Middle East Gulf returned one notch down in the ranking of largest holder of oil floating stocks to the third place. The most material monthly rise of crude oil stockpiles that held on floating storages in March 2022 was recorded in Europe. The volume of crude oil that held offshore in the region exploded by 2.5 mln bbl, or nearly +300% MoM, due to sanctions on oil export from Russia, imposed by the US and the UK. Obviously, it was the most rapid monthly growth of the stocks since the start of the pandemic and, what is more, the rate of growth was equal to 4.73 SD of monthly growth rates in the region along the whole Vortexa dataset. Due to so enormous expansion of the inventories, the share of Europe in global floating stockpiles of crude oil jumped in March 2022 by 280 bps relative to the month prior. As of the end March 2022, the region was accounted for 3.7% of global offshore inventories of crude oil.
Comments