The crude oil market rose in March 2024 to new highs since late October 2023 supported by the OPEC+ decision to extend voluntary production cuts into the 2nd quarter and the International Energy Agency's revised outlook of tighter global supply in 2024.
EXECUTIVE SUMMARY
The crude oil market rose in March 2024 to new highs since late October 2023 supported by the OPEC+ decision to extend voluntary production cuts into the 2nd quarter and the International Energy Agency's revised outlook of tighter global supply in 2024. As market participants have begun to realize that oil supply will be constrained this year with the additional supply cuts by OPEC+ and less robust supply increase this year from non-OPEC producers, including the US, crude oil prices soared by more than 5% in March, breaching through a meaningful resistance level of $84.5 as for the ICE Brent front-month future. The geopolitical landscape also exerted a profound influence on market sentiment throughout the month. The escalating Russia-Ukraine conflict, marked by strategic drone strikes and counterattacks, alongside the intensifying Israel-Hamas hostilities, infused a degree of geopolitical risk premium into oil prices. These tensions, with their potential to disrupt supply channels and elevate regional unrest, were closely monitored by market participants, factoring into the price volatility observed during the month. On the economic front, data presented a mixed view. In the United States, despite positive signals from the personal consumption expenditures price index, concerns lingered around manufacturing contraction and weakening consumer confidence. The European economic outlook, while slightly improved, remained cautious amid revised growth forecasts. China's economic challenges, particularly in its property market, alongside high youth unemployment and contracting manufacturing sector, contributed to deflationary pressures, further complicating the global economic landscape. All in all, the ICE Brent front-month future surged in March 2024 by another $5.3, or +6.4%, to $87.2 per barrel and the NYMEX WTI near-month contract rose by $4.1, or +5.2%, to $82.3 per barrel.
As crude oil prices rose in March above a 4-month resistance level of $84.5 per barrel of Brent crude as well as above 200-days moving averages, the oil market has moved into a bullish stance and, therefore, should continue to grow in April, at least, from a technical point of view, with the previous resistance turning into the strong support level. Fundamentals also looks supportive for further crude prices growth in the second quarter of 2024 as an anticipated start of monetary easing on both sides of the Atlantic Ocean should support demand for oil products in these regions while the supply will remain very tight, not least due to extension of OPEC+ production cuts. In this regard, although investors will watch for cues from a meeting of the Joint Monitoring Ministerial Committee of producer group the OPEC in early April, the group is unlikely to make any oil output policy changes until the next semi-annual full ministerial gathering in June.
However, from a longer-term perspective, the oil market still has been trading in a broad range of $70-100 per barrel for Brent crude for the second consecutive year, the level that is comfortable for most OPEC+ countries, and we see no reason this situation to change in the foreseeable future. Despite forecasts of further demand growth in 2024 to record levels of 103 million barrels per day or even more, as well as growing expectations of supply’s deficit in the current year, it's important to remember that OPEC+'s unused capacities currently exceed 5.5 million barrels per day, which is more than enough to compensate for any supply shortfalls in the market this and next years.
Global oil production increased by 0.77 million barrels per day (mbd) in February 2024 from the preceding month, marking an upswing of 0.8% MoM, according to the most recent monthly data of the U.S. Energy Information Administration (EIA). This increment not only reversed a two-month declining trend but also represented the most rapid month-on-month rate of growth witnessed in the preceding 4 months. Nevertheless, despite the uptick, the volume of the global output has remained slightly below the levels of the 4th quarter of 2023 when it exceeded the threshold of 102 mbd. Moving to a year-over-year comparison, the production has also experienced a growth, albeit at a slightly subdued pace of 0.63 mbd when juxtaposed against the same month in the previous year, or +0.6% YoY. It was the 6th straight month of world’s oil supply expansion on an annual basis. Furthermore, when the reported production figures are evaluated against a historical backdrop, specifically the five-year average for the same month, the global oil production has surpassed the five-year average in February 2024 by 3.78 mbd, equating to a notable increase of 3.9%. Both OPEC and non-OPEC oil producers enhanced their oil output in the reported month as compared to the previous one. But while there was just a modest month-over-month increase in OPEC's oil supply and the cartel has still grappled with a downward trajectory in its output on an annual basis, albeit at a decelerating pace, non-OPEC producers continued to bolster their supply both MoM and YoY, thereby enhancing their share and sway in the global market.
Meantime, according to the most recent monthly report of the International Energy Agency (IEA), world oil production is projected to fall by 870 kbd in 1Q24 vs 4Q23 due to heavy weather-related shut-ins and new curbs from the OPEC+ bloc. From the second quarter, non-OPEC+ is set to dominate gains after some OPEC+ members announced they would extend extra voluntary cuts to support market stability. Global supply for 2024 is forecast to increase 800 kbd to 102.9 mbd, including a downward adjustment to OPEC+ output. As in 2023, non-OPEC+ oil supply growth will eclipse the oil demand expansion by some margin. Led by the United States, non-OPEC+ production is forecast to rise by 1.6 mbd in 2024 compared to 2.4 mbd last year when global oil output climbed by 2 mbd to 102 mbd. Substantial gains will also come from Guyana, Brazil and Canada, all forecast to pump at record-highs this year. Together, the non-OPEC+ Americas quartet is set to add 1.3 mbd of new oil production in 2024. Iran, which last year ranked as the world’s second largest source of supply growth after the United States, is expected to increase production by a further 280 kbd this year.
The OPEC reported an increment in its crude oil production in February 2024 of 229 kbd from the prior month, translating to a 0.9% MoM uptick. This adjustment not only halted a three-month consecutive decline but also emerged as the most rapid month-over-month acceleration in cartel’s production witnessed over the trailing 4 months. On an annual basis, however, the narrative diverged significantly. When compared to the figures from the same month last year, OPEC's crude oil output presented a decrement of 2.31 mbd, constituting an 8.0% YoY decline. This continued a protracted downward trend spanning 11 months, albeit at the slowest rate of decline recorded in the past three months. To a certain extent, such a severe annual drop in OPEC oil supply was attributed to Angola’s decision to leave the cartel amid a dispute over oil production quotas, effective since December 2023. However, the major part of this decline was still attributed to voluntary and obliged production cuts under the OPEC+ agreement. Turning to even a longer time perspective, OPEC's reported production levels fell short of the five-year average for February by 1.47 mbd, marking a 5.2% reduction. The most part of the OPEC-participating states exhibited positive dynamics of crude oil output in February 2024 relative to the month prior, though the major growth was delivered by Libya, where the Sharara oilfield returned back to work, and Nigeria, showing a 4.0% MoM uplift in its oil supply. Contrastingly, Saudi Arabia and Kuwait navigated the other end of the spectrum, with Saudi Arabia registering only a marginal 0.2% increase in output, while Kuwait experiencing a modest decline.
The IEA and the EIA have given quite different estimates of OPEC total crude oil production in February 2024. The IEA provided a significantly higher number of OPEC’s total crude oil production in the month under report of 26.91 mbd which is by 339 kbd, or meaningful +1.3%, higher compared to OPEC's own figures. Contrarily, the EIA was more conservative that the cartel itself and estimated the number as equal to 26.47 mbd, which is lower by 106 kbd, or 0.4% less, than the OPEC’s own assessment. Nigeria and the U.A.E. have remained the main source of discrepancy among crude oil output estimates provided by the three data vendors with Iraq, Iran and Venezuela responsible for less considerable but still important differences in estimates.
In early March 2024, several OPEC+ countries extended additional voluntary cuts of 2.2 mbd, aimed at supporting the stability and balance of oil markets, until the end of 2024. These additional voluntary cuts were announced by the following OPEC+ countries: Saudi Arabia (1.0 mbd), Iraq (220 kbd), the U.A.E. (163 kbd), Kuwait (135 kbd), Kazakhstan (82 kbd), Algeria (51 kbd) and Oman (42 kbd) for the second quarter of 2024. Afterwards, in order to support market stability, these voluntary cuts will be returned gradually subject to market conditions. The Russian Federation also announced the extension of its voluntary cut of 471 kbd for the same period (second quarter of 2024), which will be from crude oil production and exports as follows: in April 350 kbd from production and 121 kbd from exports, in May 400 kbd from production and 71 kbd from exports and in June 471 kbd totally from production. These Russia’s voluntary production cut is in addition to the voluntary cut of 500 kbd previously announced in April 2023, which extends until the end of December 2024. The export cut will be made from the average export levels of the months of May and June of 2023.
Total oil supply of non-OPEC nations saw a modest uptick in February 2024, with production climbing by 0.64 mbd from the level of the previous month. This 0.9% month-on-month increase, while seemingly slight, was indicative of the strong supply dynamics at play outside the OPEC consortium, as the volume of total oil output of the states not participating in the cartel climbed back to the threshold of 70.0 mbd, for the second time in history. The year-over-year comparison unfolded a more pronounced narrative of growth and resilience as non-OPEC oil producers ramped up their aggregate production by an impressive 2.74 mbd compared to February of the previous year. This 4.1% annual surge also underscored a steadfast trajectory of expansion, one that has been consistent for almost 3 years (34 consecutive months). Furthermore, the February's output notably surpassed the five-year average for this month of a year by a significant margin. Standing 5.27 mbd higher, this represented an 8.1% elevation above the norm, confirming growing influence of non-OPEC countries in the global oil production. On a country-wise level, the most part of major non-OPEC oil-producing nations produced more oil in February 2024 as against the previous month. The United States and Brazil showcased the most notable monthly expansion in output, with the U.S. achieving a significant month-on-month rebound and Brazil continuing its impressive upward trajectory. Conversely, Norway and Mexico experienced modest declines within the month, yet they maintained positive year-over-year growth.
Total oil production in the United States presented a robust recovery in February 2024 after a significant dip in January caused by abnormally cold weather conditions established in major U.S. oil-producing regions, including North Dakota. The observed monthly increase was equal to 361 kbd, translating into a 1.7% enhancement from the preceding month. This uptick not only reversed a two-month declining trend but also marked the most rapid month-over-month growth rate witnessed in the past 7 months. From a year-over-year perspective, the data revealed a more substantial augmentation in country’s oil production, with a 1.1 mbd increase compared to February 2023, culminating in a 5.3% YoY rise. This continued upward trajectory, extending over a 3-year period (35 months), underscored a robust and sustained expansion of U.S. oil production capabilities. Further comparing the reported production figures against historical data, the U.S total oil output for February 2024 stood significantly higher than the five-year average for the same month. Specifically, the production exceeded the average by 2.95 mbd, representing an impressive 15.6% increase.
The U.S. shale oil production witnessed only a modest month-over-month growth in the month under review, registering a 1.4% MoM increase with an added output of 138 kbd comparing to January. This uptick contributed to a sustained upward trajectory observed over the year, with a notable 3.4% year-over-year increase, equating to an additional 323 kbd. This growth extended an upward trend, witnessed over preceding 33 months. Moreover, the output of shale oil in the country significantly surpassed historical norms as well, with production in the reported month stood 1.36 mbd, or +16.0%, above the five-year average for February. Only a half of major US shale oil fields provided growth in output in February 2024 comparing to the previous month. The Permian Basin led with a notable increase, showcasing a robust month-over-month growth of 1.6%, while the Bakken field demonstrated resilience with a 3.7% increase from the previous month. In stark contrast, the Anadarko field faced significant challenges, with a 3.7% decline from the previous month, marking its steepest downturn in over three years. The Niobrara field also demonstrated a short-term pressure with a 2.5% month-over-month decrease while the Eagle Ford field experienced a less material decline within the month of 0.6%.
The International Energy Agency (IEA) revised up slightly its forecasts of global oil demand growth, both for 1Q24 and the whole 2024. Now, the agency expects the global demand to rise by a higher-than-expected 1.7 million barrels per day (mbd) in 1Q24 on an improved outlook for the United States and increased bunkering. Longer shipping routes and faster vessel speeds saw Singapore bunkering reach all-time highs. That, along with surging US ethane demand for its petrochemical sector underpins a slight upward revision to the demand expectations for this year by 110 thousand barrels per day (kbd) compared with last month IEA’s report. So, world oil demand growth is now forecast by the IEA at 1.3 mbd in 2024, down sharply from last year’s 2.3 mbd expansion. The slowdown in growth, already apparent in recent data, means that oil consumption reverts towards its historical trend after several years of volatility from the post-pandemic rebound. A weaker economic outlook further tempers oil use, as do efficiency improvements and surging electric vehicle sales. Growth will continue to be heavily skewed towards non-OECD countries, even as China’s dominance gradually fades. The latter’s oil demand growth slows from 1.7 mbd in 2023 to 620 kbd in 2024, or from roughly three-quarters to half of the global total, under the gathering weight of a challenging economic environment and slower expansion in its petrochemical sector.
The most recent data of the U.S. Energy Information Administration (EIA) also confirms more robust demand expansion in the 1Q24. The February 2024 figures disclose a remarkable uptick in global oil usage, with a surge of 2.49 mbd relative to the month prior, translating to a growth rate of 2.5% MoM, highlighting the fastest pace of expansion observed within a year-long period. Moreover, after a certain weakening in January, the demand restored back close to its recent all-time high of 103.0 mbd witnessed in December 2023. The robust monthly expansion of the global consumption in February 2024 was driven by a solid strengthening of the demand both across OECD and non-OECD countries, with both groups delivered nearly equal rates of oil demand expansion on a month-over-month basis. Nevertheless, while for OECD countries, the reported data suggests a nuanced recovery path, where short-term demand spurts intersect with longer-term flat trends of cautious growth or subtle declines, reflecting efficiency gains, energy transition policies, and demographic factors, the non-OECD narrative is one of vigorous expansion, underpinned by developmental imperatives of increased oil consumption.
Global observed oil inventories surged by 47.1 million barrels (mb) in February 2024, according to the early data of the IEA, despite global onshore oil stocks fell a further 38 mb within the month, taking the draw down since July 2023 to 180 mb. So, offshore oil stocks dominated the gains as trade dislocations from the rerouting of Russian barrels and more recently due to unrest in the Middle East, have boosted oil on water by 115 mb. In February 2024 alone, global oil on water surged by 85 mb as repeated tanker attacks in the Red Sea diverted more cargoes around the Cape of Good Hope. At nearly 1.9 billion barrels as of the end of February, the global oil on water hit its second highest level since the height of the Covid-19 pandemic. However, the net change of global oil inventories since the start of the year was nearly flat as global stocks plunged in January 2024 by 48.1 mb, as for the preliminary data, with OECD total commercial oil stocks at a 16-month low.
Turning to December 2023, detailed oil inventories statistics on which were revealed by the IEA, total OECD oil inventories experienced a subtle contraction within this month, marking a continuation of prevailing trends. The inventory levels dipped by another 0.4 million (mln) tons from November 2023, translating to a marginal decline of 0.1% MoM. This monthly decrement underscored the continuation of a downward trajectory for the 5th straight month, with December's figures representing the lowest inventory levels not seen in the preceding almost 7 years (82 months). The year-over-year analysis further accentuated this trend, with a substantial reduction of 7.3 mln tons, or -1.6% YoY, compared to December of the previous year, reinforcing the evidence of a consistent downward trend in annual terms that has been in place for nearly a year. Moreover, compared to the five-year average for December, the presented figures were lower by a significant 51.3 million tons, marking a remarkable 10.0% decrease and highlighting the severity of the recent inventory depletion.
U.S. total oil inventories witnessed a significant contraction in February 2024, falling by 24.27 mb in compare to the previous month, or -1.5% MoM. Such a reduction propelled the inventories to their new lowest point decades, underscoring a persistent downward trend observed over the past three months. Also, it was only the 4th month in the modern history when the volume of the total oil stocks in the United States was below the threshold of 1.6 bn barrels. Notably, this period recorded the sharpest month-over-month rate of decline in nearly a year. Compared to February of the previous year, the U.S. total stocks of oil have dwindled by 53.07 mb, or a -3.2% YoY decline, marking the most rapid annual contraction observed in the past 6 months. This decline was particularly stark when juxtaposed with the five-year average for the same month, revealing a substantial shortfall of 242.47 mb or a dramatic 13.3% drop, also confirming a significant deviation from historical norms. The U.S. Strategic Petroleum Reserve (SPR) and commercial oil inventories in the country again delivered divergent trends in February. If the volume of oil stored in the SPR experienced a modest uptick in the reported month, with the stocks increasing by 2.56 mb from the previous month, or +0.7% MoM, achieving the highest value seen in the last 10 months, the commercial stocks witnessed a significant depletion in February 2024, with a decrease of 32.18 mb or a 6.3% MoM drop from the preceding month, sinking to their lowest level in more than a year.
Meantime, crude oil inventories at Cushing, Oklahoma, witnessed an increase in of 2.88 mb in February 2024, translating to a substantial 10.2% MoM growth. However, on a year-over-year basis, the picture contrasted sharply with the monthly observation. The inventories have contracted by 9.75 mb compared to February of the previous year, a stark 23.9% YoY decrease. Moreover, comparing to the five-year average for the same month, the reported inventory levels in February 2024 were 8.16 mb lower, a 20.9% decrease. These comparisons suggest that despite to the recent uptick the oil inventory levels at Cushing have still remained very depressed from a longer-term point of view, underscoring a rather tight supply-demand balance on the crude oil market, at least within the United States.
The global offshore oil inventories showed a significant contraction in February 2024 relative to the prior month, according to the data provided by Vortexa Ltd., in contrast to what the IEA has stated in its most recent monthly report. Thus, Vortexa’s data revealed a decrease in total oil stocks on water of 16.08 million barrels (mb) from the level of January, marking a substantial 20.7% MoM decline. This reduction has brought the floating oil inventories worldwide to their lowest level in over 4 years (50 months. Notably, February 2024 witnessed the steepest month-on-month rate of decline observed in the past 6 months. Compared to February of the previous year, the stockpiles have diminished by 18.88 mb, equivalent to a 23.4% YoY decrease. This contraction was part of an ongoing year-over-year downtrend that has been evident for 5 months, with the reported rate of decline being the most rapid witnessed in the last 17 months. Moreover, the presented stockpile levels were also markedly lower than the five-year average for February, down by 11.30 mb, representing a 15.5% decrease from this benchmark.
Despite to the substantial monthly decline of the total floating oil stocks around the globe, their dynamics in different regions of the world were uneven. Thus, the stockpiles fell in Asia by 15.3%, continuing a downward trajectory and hitting the lowest level over last 4 years, while the West African inventories also witnessed a substantial decline of 25.1%, marking the lowest levels seen in 8 months and the US Gulf Coast faced a dramatic depletion, with a 95.1% plunge in inventories. In stark contrast, the Middle East Gulf region experienced a growth in the stockpiles, with an 18.8% increase from the previous month, signaling a break from a downward trend, while Europe displayed resilience with a 52.2% month-over-month increase in its oil inventories and the North Sea charted a course of modest growth with an 8.0% increase in the stocks.
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