In August 2023, the crude oil market soared close to a year-to-date high, breaching above the level of $88.0 per barrel as of the active ICE Brent future for the first time since January 2023. US crude oil benchmark NYMEX WTI delivered even more impressive performance, climbing up to nearly $85.0 per barrel, its maximal level since the middle of November 2022.
EXECUTIVE SUMMARY
In August 2023, the crude oil market soared close to a year-to-date high, breaching above the level of $88.0 per barrel as of the active ICE Brent future for the first time since January 2023. US crude oil benchmark NYMEX WTI delivered even more impressive performance, climbing up to nearly $85.0 per barrel, its maximal level since the middle of November 2022. The rally was driven by a further extension of Saudi Arabia’s voluntary supply cut of 1 mln bbl / d for September 2023 and the IEA’s report of a record-breaking global oil demand of 103 mln bbl / d in June 2023 with the potential for another peak this current month, as well as remaining geopolitical tensions in several regions of the world, including the Black Sea and Africa. However, the rally ran out of steam in the second part of the month with the prices of major benchmarks retreated below the previous month’s close as concerns over economic growth in world’s major economies including the US and China strengthened after China's struggling property giant Evergrande files for bankruptcy protection in the US and Fed’s Chair Jerome Powell said further interest rate hikes may be needed to fight inflation at the annual conference in Jackson’s Hole. As of August 28, the ICE Brent near-month future again returned back below $85 per barrel, losing roughly 1.5% as compared to the end of July 2023. And the NYMEX WTI near-month contract delivered even a deeper monthly decline, decreasing by 1.9% as against with the end of July 2023 to $80.2 per barrel.
Notwithstanding the crude oil market delivered in July-August 2023 its most prominent price rally over more than a year, the market again failed to breach through the major resistance of $87.5-88.0 as for the ICE Brent active contract, along with previous attempts in January and April of 2023. As many market commentators expect further moderation of crude oil prices in coming months due to seasonally weaker demand in autumn season and remaining concerns over economic growth, the price performance during the next month will be crucial to developments in a longer-run. If crude oil prices really will continue to soften, there will be a rather high probability to say that the rally in oil price is over and the market still has persisted in a consolidation mode in a wide range of, roughly $70-90 per barrel as for ICE Brent benchmark. Otherwise, the recent retreat of the prices should be considered as only a temporary weakness in the movement beyond a $100 per barrel level. Which scenario of the two will be played in reality will depend, in our opinion, mainly on news from the supply side as only new major voluntary or forced supply disruptions will be sufficient to pushed crude oil higher above recent August peaks. If there will be no such news, the crude prices will gravitate in September 2023 somewhat lower. However, as fundamentals of the market still remained tight, we see only a limited downside for crude oil prices in a short-term horizon with the support levels located at $77-78 at ICE Brent and $74-75 at NYMEX WTI.
In July 2023, global oil supply decreased marginally relative to the volume of the month prior, declining by 0.3 mln bbl / d, or -0.3% MoM. However, the figure of June 2023 was revised up to a new post-pandemic high of 101.63 mln bbl / d. So, the production in July 2023 again was above both the average level and the upper bound of the range for the corresponding month of a year, for the 6th month in a row. As for yearly performance, global oil production, contrarily, delivered positive dynamics in July 2023, along with preceding months. Comparing to the level of July 2022, total oil output worldwide improved in July 2023 by 1.06 mln bbl / d, or +1.1% YoY, posting its 27th consecutive month of gain in annual terms. However, the speed of yearly expansion of the output geared down in July 2023 to its slowest pace since the spring of 2021.
The same time, according to the most recent IEA’s data, global oil supply plunged by 0.91 mln bbl / d to 100.9 mln bbl / d in July 2023. A sharp reduction in Saudi production in the month under review saw output from the OPEC+ bloc fall 1.2 mln bbl / d to a near two-year low as a voluntary reduction from Saudi Arabia came into effect. Over the same period, producers outside the group ramped up output by 1.6 mln bbl / d to 50.2 mln bbl / d, but limited non-OPEC+ gains are expected for the remainder of the year. The IEA projects global oil output to expand by 1.5 mln bbl / d to a record 101.5 mln bbl / d in 2023, with the US driving non-OPEC+ gains of 1.9 mln bbl / d. Next year, non-OPEC+ supply is also set to dominate world supply growth, up 1.3 mln bbl / d, while OPEC+ could add just 160 thsd bbl / d.
OPEC total crude oil production tumbled in July 2023 by 942 thsd bbl / d comparing to the level of June 2023, or -3.3% MoM, according to cartel’s own data, as Saudi Arabia’s voluntary production cut of 1.0 mln bbl / d came into effect. It was the steepest monthly drop of OPEC total supply of crude oil since the summer of 2020, when the cartel had no other choice but to respond with massive production cuts to the COVID-19 pandemic. In result, the volume of OPEC crude oil output sank in July 2023 to the lowest level since September 2023 of 27.3 mln bbl / d. Comparing to a post-pandemic high of 29.65 mln bbl / d shown in August 2022, cartel’s total supply diminished in July 2023 by roughly 2.34 mln bbl / d, while relative to a pre-pandemic maximum of 32.0 mln bbl / d shown in November 2018 it was lower by 4.69 mln bbl / d. Meantime, the OPEC delivered even more dramatic contraction of its crude oil supply in July 2023 in yearly terms. Thus, as compared to the level of July 2022, cartel’s total output dropped by 1.65 mln bbl / d, or -5.7% YoY, posting its worst annual performance since April 2021 and the fourth consecutive month of decline in yearly terms. Meantime, both the IEA and the EIA estimated OPEC total output of crude oil considerably higher in July 2023 in comparison with cartel’s own numbers. Thus, the IEA evaluated total crude oil production of the OPEC in the month under review as equal to 27.86 mln bbl, while the EIA assessed the figure as equal to 27.62 mln bbl / d, which is 550 thsd bbl / d and 310 thsd bbl / d higher than OPEC’s home estimate, respectively.
Total production of oil by countries not-participating in the OPEC kept on growing in July 2023, expanding by another 0.32 mln bbl / d relative to a month ago, or +0.5% MoM, again reaching a new all-time high of 68.3 mln bbl / d. Major non-OPEC oil-producing states delivered mixed production dynamics in July 2023 relative to the previous month, with the overall growth achieved due to output expansion just in a couple of them. On the one hand, the most material monthly growth of oil output in July 2023 was observed in Canada. The production improved in the country by 0.26 mln bbl / d in compare to the volume of June 2022, or +4.6% MoM. Brazil also continued to deliver strong production results in July 2023, along with several preceding months, though this impressive growth was again attributed mainly to a seasonal pattern of production in the country. Thus, total oil output grew in Brazil in the month under review by 130 thsd bbl / d relative a month ago, or +2.9% MoM, climbing up to its new high of 4.49 mln bbl / d for the whole history of observations. Norway demonstrated a more modest increase of oil production in July 2023. On a monthly basis, the output ramped up there by 1.5% MoM, or +30 thsd bbl / d by contrast to the month prior. On the other hand, the most prominent monthly fall of oil extraction in July 2023 was demonstrated in China. The output decreased there by 1.9% MoM, or -100 thsd bbl / d by contrast to the previous month. However, even steeper monthly drop in relative terms was recorded in the UK, where total oil production tumbled within the month under review by 7.3% MoM, or -70 thsd bbl / d relative to a month ago.
US total oil supply continued to grow in July 2023 for the 5th straight monthly, adding another 81 thsd bbl / d relative to the level of June 2023, or +0.4% MoM and climbing up to a new all-time high of 21.63 mln bbl / d. Monthly expansion of US total oil production was driven mainly by a growth of crude oil and renewable fuel output, while the output of NGLs, conversely, showed a certain contraction relative to a month ago. In absolute terms, more profound monthly expansion of the production in the US was recorded in crude oil, which increased by 52 thsd bbl / d by contrast to the level of June 2023, or +0.4% MoM, expressing the second consequent month of growth and achieving a new post-pandemic high of 12.73 mln bbl / d. In turn, in relative terms, even more rapid monthly expansion was observed in production of renewable fuel in the US, which widened by 36 thsd bbl / d relative to a month ago, or +2.8% MoM. US production of renewable fuel continued to growth throughout the third consequent month and in July 2023 went up to its new peak volume on records of to 1.33 mln bbl / d. On the other hand, the output of NGLs weakened in the US in the month under report by 10 thsd bbl / d, or -0.2% MoM, showing its first monthly decrease in recent 7 months.
The monthly growth of crude oil production in the US in July 2023 was caused by expansion of both conventional crude oil and shale oil output in the country with both parts delivered comparable increments. In particular, production of conventional crude oil improved in the US in July 2023 by 27 thsd bbl / d in comparison with the level of June 2023, or +0.9% MoM, giving its second straight monthly gain. The same time, production of shale oil went up in the US in July 2023 by 25 thsd bbl / d relative to a month ago, or +0.3% MoM, delivering permanent expansion, or at least not contraction, in the course of 7 months in a row and reaching its new marginal record high in history.
Although the IEA confirmed world oil demand is scaling record highs in summer 2023, boosted by strong summer air travel, increased oil use in power generation and surging Chinese petrochemical activity, the agency again revised a little bit downward its demand forecast for 2024 year. According to IEA’s most recent monthly report, world oil demand hit a record 103 mln bbl / d in June 2023 and August could see yet another peak. After months of lackluster readings, OECD demand was revised up for May and June, with overall consumption returning to growth in 2Q23 after two quarters of contraction. Chinese demand was also stronger than expected, reaching fresh highs despite persistent concerns over the health of the economy. So, For the year, the IEA sees global oil demand on track to expand by 2.2 mln bbl / d to 102.2 mln bbl / d, its highest ever annual level. However, with the post-pandemic recovery having largely run its course and as the energy transition gathers pace, growth will slow to 1.0 mln bbl / d in 2024.
The same time, in accordance with EIA data, global consumption of oil and petroleum products softened in July 2023 after two consequent months of strengthening, falling by 0.78 mln bbl / d, or -0.8% MoM in compare to June 2023, when the figure rose to a new post-pandemic high of 102.0 mln bb / d. Earlier, total demand for oil worldwide exceeded the level of 102.0 mln bbl / d only during a short period of July-August 2019. On a year-over-year basis, global demand for oil and oil products, conversely, continued to demonstrate solid growth in July 2023, adding 1.39 mln bbl / d relative to a year ago, or +1.4% YoY, and kept on growing or at least being flat for the 29th straight month.
Global observed oil inventories declined by 17.3 mln bbl in June 2023 on a monthly basis, pursuant to the most recent IEA data, led by the OECD. In turn, non-OECD total oil stocks and oil on water were largely unchanged. OECD commercial inventories of crude oil and petroleum products fell in June 2023 by 14.7 mln bbl, in line with the seasonal trend, to 2.787 bn bbl. By the same token, the stocks were 115.4 mln bbl below the 5-year average, with product inventories particularly tight. Preliminary IEA data suggest global inventories drew further in July and August 2023.
Detailed IEA data on May 2023 suggest that OECD total commercial stocks of crude oil and petroleum products decreased by 2.03 mln tons in compare to the level of April 2023, or -0.4% MoM, fluctuating below the level of 480.0 mln tons for the 12th straight month, and, therefore, staying again well below both an average and a lower bound of a range for the corresponding month of a year over recent 5 years. On an annual basis, OECD total commercial oil inventories again narrowed in May 2023, keeping on falling for 27 months in a row. The volume of the stockpiles diminished by 7.38 mln tons relative to the same month of the previous year, or -1.5% YoY, gearing down to the slowest pace of annual decline for more than 2 years.
US total inventories of oil and petroleum products kept on drifting sideways in July 2023 for the 7th month in a row, expanding during the month by 3.5 mln bbl in contrast to the previous month, or humble +0.2% MoM. According to the most recent data, it was the third straight month of stocks widening in a row as the figure of the month prior was revised somewhat up with the overall figure climbing up to its 5-month high. Meanwhile, the volume of the inventories remained very close to its all-time low of 1.594 trln bbl recorded in December 2022. Although the volume of oil stored in the Strategic Petroleum Reserves (SPR) continued to deplete in July 2023 for the 5th month in a row, the monthly decline was really minor and equal to just 0.3 mln bbl, or -0.1% MoM, a minimal monthly drop in recent 5 months. Nevertheless, the US governmental oil inventories sank in July 2023 to a new record low of 346.8 mln bbl for the whole history of observations. In turn, US commercial inventories of oil and refined oil products continued to grow in July 2023 for the 4th month in a row, expanding further by 3.9 mln bbl in compare to the month prior, or +0.3% MoM.
Total offshore inventories of crude oil worldwide continued to grow in July 2023 for the second consequent month, according to Vortexa, the cargo-tracking company, although at much slower pace than in the previous month. Relative to the level of June 2023, floating oil stockpiles increased by just 1.0 mln bbl, or +0.9% MoM. Notwithstanding the volume of the stocks ran to the highest level since April 2021, the inventories only marginally exceeded the average level for the corresponding month of a year over last 5 years. The majority of the regions exhibited positive dynamics of offshore inventories of crude oil in July 2023, though a tangible cutback of stockpiles in Asia negated the most part of the growth in all other regions of the world. Thus, offshore crude oil inventories tumbled in Asia in July 2023 by 9.9 mln bbl by contrast to the level of a month ago, when they rose to a 6-month high, or -18.3% MoM, showing their steepest monthly drop over recent 12 months and sinking to a new year low of less than 45 mln bbl.
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