In June 2023, the oil market remained suppressed in a tight range of $70-80 per barrel of ICE Brent for the second consequent month amid confronting signals from the supply side and preserving concerns about economic outlook. Although crude oil prices have found some grounds and broken out from the bearish market of April, the market remains very fragile with no visible triggers for the upside on radar.
EXECUTIVE SUMMARY
In June 2023, the oil market remained suppressed in a tight range of $70-80 per barrel of ICE Brent for the second consequent month amid confronting signals from the supply side and preserving concerns about economic outlook. Although crude oil prices have found some grounds and broken out from the bearish market of April, the market remains very fragile with no visible triggers for the upside on radar. Bearish sentiment persists on the market as even more supply cuts from OPEC+ didn’t moved prices significantly higher within the month. Nevertheless, both major crude oil benchmarks are heading for their first monthly gains in recent three months, though not very substantial. As of June 28, ICE Brent near-month future is traded around $74 per barrel and NYMEX WTI stands close to $72 per barrel, showing 2.2% and 2.1% gains relative to prior month’s close, respectively.
However, general pattern in crude oil futures didn’t change much comparing to preceding months with the prices fluctuating in a slow downward channel for almost 7 months in a row. As for ICE Brent near-month contract, the level of $70.0 still should be considered as a very strong support amid several failed attempts to move lower, while the area above $80.0 looks like a serious resistance.
The 35th OPEC and non-OPEC Ministerial Meeting which was held on June 4, 2023 decided to not only to maintain its production cut targets for 2023, but also to set a new, lower target for 2024. The group agreed to adjust the level of overall crude oil production for OPEC and non-OPEC Participating Countries to 40.46 mln bbl / d, starting January 1, 2024 until December 31, 2024. The new OPEC+ production target for 2024 is 1.4 mln bbl / d lower than this year's target and include significant reductions in Russia (650 thsd bbl / d), Nigeria (360 thsd bbl / d), and Angola (175 thsd bbl / d), effectively bringing them in line with current actual production levels. In contrast, the new target allows for an increase of 200 thsd bbl / d the U.A.E.'s target output. Moreover, Saudi Arabia said that it would unilaterally cut oil production by 1 mln bbl / d in July 2023 for a month with the possibility of an extension.
Backwardation of two major crude oil benchmarks, ICE Brent and NYMEX WTI, eased even more significantly in June 2023 comparing to May 2023 with ICE Brent’s front end also flipped into a marginal contango along with NYMEX WTI. Both futures curves continued to flatten in June as well on a back of renewed concerns about economic outlook and growing inventories. However, the major movements were observed within next 12 contracts while more distant futures delivered less pronounced dynamics.
Global oil output softened by 0.64 mln bbl / d in May 2023 as against with the revised data of the month prior, or -0.6% MoM, pursuant to US EIA’s data. As April 2023 print was revised up to monthly flat from the initial estimate of -0.2% MoM, the month under report became the first monthly of global oil supply contraction since the start of the current year. Nevertheless, although the volume of the output deepened below the level of 101.0 mln bbl / d, it remained above the threshold of 100.0 mln bbl / d for the 11th straight month. On an annual basis, total oil production around the world still showed a gain of 2.26 mln bb/ d in May 2023, or +2.3% YoY, posting its 25th month of continuous growth. However, annual expansion of global oil supply remained moderate for recent 2 quarters with the rate of growth hovering in a range of 2.0-3.0%. According to the most recent IEA’s data, world oil production fell in May 2023 by 660 thsd bbl / d on a monthly basis to 100.6 mln bbl / d. Deeper cuts from some OPEC+ producers kicked in while output from Iraq’s northern Kurdish region and some Canadian oil sands remained shut in. Saudi Arabia, with its voluntary cut of 500 thsd bbl / d agreed in April 2023, led the monthly drop in world supply, but the overall decline was stemmed by a seasonal 330 thsd bbl / d rise in biofuels along with higher flows from Nigeria and elsewhere. The Kingdom has promised to slash output by a further 1 mln bbl / d in July 2023 to a two-year low of 9 mln bbl / d.
OPEC’s total crude oil production continued to soften in May 2023 for the third month in a row as deeper supply cuts under the most recent OPEC+ agreement, including voluntary adjustments, came into force in the month. The output shrank by another 464 thsd bbl / d relative to a month ago, or -1.6% MoM, bringing the cumulative decline over recent three months to nearly 820 thsd bbl / d, according to cartel’s own data. In result, the volume of OPEC’s total crude oil output deepened in May 2023 to its minimal print since December 2021, only slightly above 28.0 mln bbl / d. Relative to a post-pandemic high of 29.65 mln bbl / d shown in August 2022, OPEC’s total crude oil supply was lower in May 2023 by roughly 1.6 mln bbl / d. On a year-over-year basis, the OPEC reduced its total output in May 2023 by 340 thsd bbl / d, or -1.2% YoY, posting its new worst annual performance since April 2021. In turn, the IEA continued to estimate OPEC’s total output of crude oil materially higher, while the EIA also provided a higher assessment of OPEC’s total supply in May 2023 for the second month in a row, though less different from cartel’s own one. Thus, the IEA assessed OPEC’s total crude oil production in May 2023 as equal to 28.50 mln bbl and the EIA evaluated the figure as equal to 28.17 mln bbl / d, which is 435 thsd bbl / d and 100 thsd bbl / d higher than OPEC’s home estimate, respectively. And if the IEA often provides higher numbers of OPEC’s total production of crude oil, the EIA usually is more cautious and prints less optimistic estimates comparing to OPEC’s ones.
Total oil production of countries not participating in the OPEC almost unchanged in May 2023 relative to the previous month, decreasing by a humble amount of 15 thsd bbl / d, or less than -0.1% MoM. Although it was the second consequent month of marginal narrowing of the production in the non-OPEC group, its volume remained close to its post-pandemic and all-time highs. On a single-country level, major non-OPEC oil-producing states delivered mixed dynamics of oil output in May 2023 by contrast to the preceding month. The most significant monthly decline of oil production in the month under review was recorded in the US and Kazakhstan. Total US oil output declined in May 2023 by 190 thsd bbl / d as against with April 2023, though just -0.9% MoM, mainly due to a slowdown of domestic crude oil production in the country to its lowest level since the year start. And oil production in Kazakhstan dropped in May 2023 by 160 thsd bbl / d relative to the level of April 2023, or severe -8.2% MoM as the country reduced its supply according with its quota under the most recent OPEC+ agreement, also taking into account a voluntary reduction of 78 thsd bbl / d. On the other hand, the most considerable monthly expansion of oil production in the month under review was again exhibited in Brazil, for the second month in a row. Brazil’s total oil supply jumped by another 490 thsd bbl / d relative to the level of April 2023, or impressive +13.2% MoM, the best monthly performance since April 2021. In result, the volume of country’s output climbed to its highest level over recent 20 months. Nevertheless, the same as in the month prior, so dramatic growth of oil production in Brazil in May 2023 also was attributed mainly to a seasonal output pattern.
The monthly drop of crude oil production in the US in May 2023 was again fueled solely by negative dynamics of conventional crude oil output, while shale oil output in the country continued to grow. Thus, supply of conventional crude oil dropped more significantly than the revision, deteriorating by 310 thsd bbl / d comparing to the revised level of April 2023, or severe -10.1% MoM, the worst monthly performance since September 2021. Meanwhile, total US shale oil production kept on expanding in May 2023 for the 5th month in a row and increased by another 93 thsd bbl / d by contrast with the level of April 2023, or +1.0% MoM. In result, the volume of shale oil output in the country reached its new marginal maximum over the whole history of observations of 9.66 mln bbl / d. The majority of US shale oil fields expressed positive dynamics of production in May 2023 as compared to the prints of April 2023, along with the overall shale oil supply in the US. The strongest monthly growth of shale oil extraction in the month under consideration was again recorded on Permian deposit, which extended its output by 55 thsd bbl / d over a month, or +1.0% MoM, to its new record high of 5.86 mln bbl / d in the course of the whole history of observations.
The IEA again revised upward its forecast for world oil demand growth for 2023 which continues to defy the challenging macroeconomic climate and is set to rise by 2.4 mln bbl / d in 2023, outpacing last year’s 2.3 mln bbl / d increase as well as earlier expectations. According to the agency’s estimates, China accounts for 60% of the gains, with soaring transport and petrochemical use propelling apparent demand in April 2023 to an all-time high of 16.3 mln bbl / d. Indian demand is equally robust with the latest readings for May 2023 showing both gasoline and diesel breaking records. By contrast, OECD demand remains lackluster amid an ongoing manufacturing slump and generally subdued economic growth. Having spent 4Q22 and 1Q23 in contraction, the OECD returns to muted growth in 2Q23, with the US driving season getting off to a strong start. In advanced and developing economies alike, rebounding air traffic is consolidating jet/kerosene’s position as the main contributor to global 2023 demand gains (1.1 mln bbl / d).
Global consumption of crude oil and petroleum products improved in May 2023 after two consequent months of softening and rose by 0.42 mln bbl / d relative to the level of April 2023, or +0.4% MoM. Meantime, it prolonged to fluctuate in a rather tight range of 97.0-101.0 mln bbl / d for almost 2 years, restoring in May 2023 back above the threshold of 100.0 mln bbl / d. Relative to a year ago, global demand for oil and oil products increased in the month under report by 1.74 mln bbl / d, or +1.8% YoY, showing its 27th month of growth in a row. As for major oil-consuming countries, the most material monthly rise of the consumption in the month under review was experienced in the US, where it increased by solid 0.5 mln bbl / d relative to the level of April 2023, or +2.5% MoM. Russia and India also demonstrated a certain expansion of their total demand for oil in May 2023. In particular, Russian demand grew by 0.13 mln bbl / d relative to a month ago, or +4.2% MoM, showing its first growth over last 3 months. In India, the demand widened in May 2023 by 80 thsd bbl / d in monthly terms, or +1.5% MoM, restoring to the level of March 2023.
Global observed oil inventories rose by 10 mln bbl in April 2023 as a 15.9 mln bbl decline in oil on water and a 1.1 mln bbl drop in non-OECD stocks partly offset a 27 mln bbl build in total OECD stocks, according to the most recent IEA data. Total OECD commercial stocks of oil and petroleum products rose by 33.6 mln bbl but were still 86.4 mln bbl lower than the 5-year average. Preliminary IEA data for May 2023 shows a further stock build in OECD countries of approximately 21 mln bbl.
Total US inventories of oil and oil products barely changed in May 2023 in compare with the month prior, adding just 2.4 mln bbl or +0.1% MoM. The volume of the stocks remained below the threshold of 1.6 trln bbl for 3 months in a row and for the 4th time in history, being only 4.3 mln bbl higher than its all-time low which was recorded in December 2022. Despite to the flat monthly dynamics of the overall stockpiles, the volume of the Strategic Petroleum Reserves (SPR) held by the US government continued to exhaust in May 2023 and shrink by another 8.8 mln bbl relative to the level of April 2023, or -2.4% MoM, sinking to a new all-time low of 353.2 mln bbl. The same time, US commercial inventories of oil and petroleum products, conversely, showed the opposite upward move and widened during the month under consideration by 11.2 mln bbl by contrast with the previous month, or +0.9% MoM. It was the second straight month of commercial oil stocks expansion in the country.
Global offshore inventories of crude oil continued to slide down in May 2023, although at a very slow speed, shrinking by roughly 0.5 mln bbl in compare to the previous month, or -0.5% MoM, according to Vortexa, the cargo-tracking company. So, the volume of the stocks remained marginally below an average level for the corresponding month of a year over last 5 years for the second month in a row. On a year-over-year basis, global offshore inventories of crude oil were higher by 8.1 mln bbl in May 2023, or +9.0% YoY, posting their third consequent months of expansion.
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