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Oil Market Report - August 2019

EXECUTIVE SUMMARY

Crude oil futures prices ended August lower with ICE Brent recording it lowest monthly average this year of $59.35 that is 7.5% lower than monthly average price of July, wiping out all the previous month’s gains. Oil futures were volatile over much of August. The market was driven mainly by non-fundamental factors, with investors remaining focused on new import tariffs imposed by the US and China as of 1 September. The escalating trade dispute further jolted market confidence and negatively affected global financial markets. Weaker economic data from China, Germany and the US contributed to the bearish market sentiment and added to concerns about a slowdown in the economy and oil demand. The continued strengthening of the US dollar during August also kept crude oil prices under pressure. However, the picture on the crude oil market completely changed within the 3rd week of September. On Saturday, September 14, Saudi Arabia’s oil production was cut by half after a swarm of explosive drones struck at two kingdom’s major oil facilities and set the world’s biggest crude-processing plant ablaze. Gas output was also disrupted, with 2 billion cubic feet in daily output, about half of normal production.

The strike on a Saudi Arabian oil facility removed about 5% of global supplies that obviously resulted in biggest ever intraday jump of oil prices. In an extraordinary start to trading on Monday, September 16, the ICE Brent futures leapt almost $12 to $71.95 per bbl in the seconds after the open, the most in dollar terms since they were launched in 1988. Prices have since pulled back more than half of that initial surge of almost 20%, but were still heading for the biggest weekly advance in almost three years.

Total crude oil production by the OPEC as a whole in August 2019 finally reversed and modestly increased by 0.7% mom or 200 thsd bbl / d from the lowest level over last 5 years. The cartel’s output restored back close to the threshold of 30.0 mln bbl / d. Nevertheless, comparing to one year ago level of output the OPEC in August 2019 extracted significantly less crude oil, yearly rate of decline was equal to 8.6% yoy or substantial 2.8 mln bbl / d. The most tangible growth of production within the cartel was recorded in three states, namely Nigeria, Angola and Saudi Arabia. Thus, crude oil production in Nigeria in August 2019 jumped by 3.2% mom or 60 thsd bbl / d relative to the level of the previous month. Angola built up its crude oil output by 2.9% mom or 40 thsd bbl / d and Saudi Arabia extracted 0.5% mom or 50 thsd bbl / d more oil than in the previous month in the course of the same time period. The main cutback in production among the OPEC members took its place in Libya where output of crude oil felt by 2.7% mom or 30 thsd bbl / d.

Total oil production around the globe in August 2019 went up by 0.8% mom or 764 thsd bbl / d in compare to the volume of the previous month. However, relative to one year ago level cumulative global crude oil production in August 2019 contracted by 0.5% yoy or 512 thsd bbl / d. Cumulative oil production by the non-OPEC states in August 2019 grew up by just 0.5% mom or almost 350 thsd bbl / d. The most substantial growth of crude oil production among non-OPEC states in August 2019 relative to the previous month took a place in the USA, where output of crude oil grew up by 3.0% mom or 363 thsd bbl / d. Besides the USA significant monthly increase of output in the month under review was also recorded in Brazil (+4.1% mom or +114 thsd bbl / d) and Canada (+3.0% or +129 thsd bbl / d). Russia and Malaysia in August 2019 were among the non-OPEC states that pumped more oil than they did in the previous month too. Monthly growth rates in these two countries were equal to +0.7% mom or +83 thsd bbl / d and to +10.4% mom or +114 thsd bbl / d respectively. The main cutback of crude oil production in August 2019 was observed in Egypt that reduced its output by 18.5% mom or 93 thsd bbl / d and in the UK, where production of crude oil declined by 7.8% mom or 85 thsd bbl / d. Among other states with falling output on monthly basis in non-OPEC group in the month under review were China (- 1.6% mom or -62 thsd bbl / d), Norway (-1.7% mom or -25 thsd bbl / d) and Mexico (-1.4% mom or -23 thsd bbl / d).

Crude oil production in the USA in August 2019 significantly rose by 3.6% mom or 425 thsd bbl / d in accordance with weekly data that were released by the US DOE within the period under report. From the year-over-year standpoint the rate of crude oil output growth in the USA in August 2019 was even substantially higher and equal to 12.8% yoy or 1.4 mln bbl / d. Crude oil export from the USA in August 2019 marginally increased by 1.0% mom or 30 thsd bbl / d relative to the level of July 2019. Net import of crude oil to the USA in August 2019 demonstrated comparable monthly dynamic with the export and contracted by 1.1% mom or 44 thsd bbl / d that implies marginal decline of crude oil import to the USA.

Total production of shale oil in the USA in August 2019 rose by 2.1% mom or another 188 thsd bbl / d in compare to the value of the previous month in compliance with the most recent data provided by Rystad Energy. So monthly rate of growth in shale oil production in August 2019 was less than the growth rate of overall crude oil extraction in the USA. In comparison to one year ago figures total shale oil production in the USA in August 2019 skyrocketed by impressive 16.1% yoy or more than 1.25 mln bbl / d.

In the course of the period under report the International Energy Agency (IEA) updated its assessments of demand for oil worldwide and finally revealed detailed figures for the 2nd quarter of 2019. Pursuant to the new data, total global demand for oil slightly increased in the 2nd quarter of 2019 by 550 thsd bbl / d or 0.6% qoq comparatively to the 1st quarter of 2019. The initial estimate for the 1st quarter of 2019 was marginally revised up by 30 thsd bbl / d to 99.11 mln bbl / d. On year-over-year basis total global demand for oil in the 2nd quarter of 2019 was also stronger than it was 12 months ago; yearly rate of growth was equal to 0.7% yoy or 730 thsd bbl / d.

The IEA remained its 2019 and 2020 global oil demand growth forecasts unchanged at 1.1 mb/d and 1.3 mb/d, respectively. According to the agency, global growth was 0.5 mb/d in 1H19 and fell as low as 0.2 mb/d in June. For 2H19, the IEA assume no further deterioration in the economic climate and in trade disputes. So, oil demand growth will be significantly higher helped by a comparison versus a low base in 2H18, lower oil prices versus a year ago and additions to petrochemicals capacity. July data show y-o-y growth of 1.3 mb/d.

Total commercial stocks of oil and oil products in OECD states in June 2019 demonstrated another moderate increase by 31.8 mln bbl or 1.1% mom. June has become the 3rd month in a row of total OECD inventories growth. However, expansion of stocks within the month was recorded only in stocks of refined oil products, while total crude oil inventories in OECD states contracted. To be more precise, total inventories of oil products expanded in June 2019 by 40.1 mln bbl or 2.8% mom and total inventories of crude oil shrank by 9.2 mln bbl or 0.8% mom the same time.

Total commercial inventories of crude oil in the USA in August 2019 continued to go down in accordance with weekly data that were released by the US DOE. The figure contracted by another 3.1% mom or 13.6 mln bbl relative to the volume of the previous month and dropped to the lowest level over the last 11 months. However, relative to the volume of the same months of the previous year (August 2018) total commercial stocks of crude oil in the USA in the month under review demonstrated a solid growth by 5.4% yoy or 21.5 mln bbl.

In contrast to the volume of total commercial inventories the stocks of crude oil in Cushing storage in Oklahoma that is the basis for WTI oil futures collapsed in August 2019 by nearly 18% mom or formidable 8.7 mln bbl relative to the level of July 2019. The figure dropped to the lowest level over last 9 months. Despite to certain decrease of inventories on monthly basis, the volume of stocks in Cushing in August 2019 was much higher than it was one year ago, namely in August 2018.

Total crude oil stocks stored on floating storages (including oil in transportation) around the globe in August 2019 grew up by 13.8% mom or 6.5 mln bbl according to the data that was provided by cargo-tracking and analytical company Vortexa Ltd. in the course of the period under report. The figure finally turned up after 3 months of decline in a row and returned back above the threshold of 50 mln bbl. It is worthwhile to note that the current volume of global floating inventories of crude oil is very close to its average level for this month over last 3 years. From the standpoint of year-over-year dynamic total volume of crude oil that held of floating storages in August 2019 skyrocketed by impressive 33.8% yoy or 13.5 mln bbl relative to the level of August 2018.

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