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Oil Market Report - December 2018


In December 2018 turmoil on the crude oil market extended further and the price of Brent oil finally tumbled to almost $50 per barrel level exactly on Christmas where it found some ground and reverted back. By the end of the month Brent crude oil as well as other crude oil benchmarks lost roughly 9-10% comparing to the end of November level. So, the recent peak-to-trough movement on the crude oil market ran on just 84 days when the price of crude (Brent benchmark) collapsed by terrific 42% or $36.5. It’s no doubts that such a scenario looked nearly impossible 3-4 months ago! The final stage of severe sell-off on the oil market was caused mainly by overall risk-off on global financial markets due to continued trade tensions between the USA and China, a certain kind of political crisis in the USA (partial government shutdown) and relatively soft macroeconomic data on both sides of the Atlantic Ocean. Semi-annual OPEC meeting on December, 6 also added volatility to the market as initially the cartel didn’t reach the agreement on the production cuts. However just next day the agreement within so-called OPEC+ group with Russia and others to jointly cut oil production by 1.2 million barrels was announced, but that time it wasn’t enough to calm the oil market.

Total OPEC oil production in December decreased by 530 thsd bbl / d or 1.6% mom according to the data provided by Bloomberg. The main cutback was made by Saudi Arabia where crude oil extraction in the reported month dropped by 420 thsd bbl / d or 3.8% mom. Also a significant contraction of oil output in December was observed in Iran that reduced production by 120 thsd bbl / d or 3.9% mom. The same time Iraq and UAE partly offset the cartel’s total oil output reduction and increased crude oil production in December by 130 and 80 thsd bbl / d or 2.8% and 2.4% mom respectively.

In December total OPEC’s spare capacities grew up by 630 thsd bbl / d or 23.8% mom to roughly 3.28 mln bbl / d. But relative to a year ago level the cartel’s overall spare capacities dropped by approximately 1.0 mln bbl / d or 23.4% yoy. The main increment in the overall OPEC’s free capacities growth in December was made by Saudi Arabia that reduced output and therefore increased spare capacities by 420 thsd bbl / d or nearly twice comparing to the level of November 2018. So now almost 60% of the cartel’s spare capacities are concentrated in just 2 states – Iran and Saudi Arabia those are old rivals in the Gulf region. Also according to Bloomberg figures 4 more states has material potential to pump more oil, namely Angola (240 thsd bbl / d), Venezuela (220 thsd bbl / d), Libya (200 thsd bbl / d) and Nigeria (180 thsd bbl / d). But we believe that all of these 4 countries now have limited abilities to build up crude oil production due to various economic and political problems, especially Venezuela.

Total global crude oil production in November 2018 (the most recent EIG estimate) didn’t change much relative to October level and stood at the level of 99.2 mln bbl / d. The same time total crude oil extraction in non-OPEC states in the reported month increased by 333 thsd bbl / d or 0.6% mom and reached a fresh marginal high of 51.88 mln bbl / d. The most considerable growth of oil production in November was achieved in Brazil (+142 thsd bbl / d or 5.6% mom) and ex-USSR w/o Russia bulk of states (+214 thsd bbl / d or 8.4% mom). The main cutback in the reported month was observed in Russia, where oil extraction decreased by 95 thsd bbl / d or 0.8% mom.

According to the US DOE’s weekly reports crude oil production in the USA in December 2018 slightly decreased by 50 thsd bbl / d or 0.4% mom. In comparison with December 2017 figures crude oil extraction in the USA skyrocketed in December 2018 by 1.87 mln bbl / d or 19.2% yoy. In November 2018 the USA was accounted for 13.8% of global crude oil production and for 22.5% of crude oil production outside of OPEC. Both figures in November remained near all-time highs confirming the thesis that the USA and especially the US shale-oil producers became the main unbalancing power on the oil market now. According to the latest data from consultant agency Rystad Energy total production of shale oil in the USA again slightly declined in December 2018 relative to the previous month by 47 thsd bbl / d or -0.6% mom. The share of shale oil in total US crude oil extraction in December was equal to nearly 70.0% the same as in the previous month.

International Energy Agency (IEA) provided update of its assessments of global demand for oil and numbers for crude oil demand in the 3rd quarter of 2018. Overall global demand for oil in the 3rd quarter of 2018 grew up by 1.33 mln bbl / d or 1.4% over the 2nd quarter of 2018. Comparing to the 3rd quarter of 2017 the global demand for oil increased by 1.50 mln bbl / d or 1.5% yoy, partly encouraged by still strong world economic growth. Controversially to the previous quarter OECD states were the main source of global oil demand growth in the 3rd quarter of 2018. The aggregate demand for oil in OECD states extended in the 3rd quarter by nearly 1.0 mln bbl / d or 2.1% qoq, while the aggregate demand for oil in non-OECD countries added in the same period just 340 thsd bbl / d or 0.7% qoq. However on the year-over-year basis non-OECD countries demonstrated in the 3rd quarter higher pace of oil demand growth equal to +2.1% yoy relative to +0.9% yoy in OECD states.

Total OECD commercial oil stocks in September 2018 (the last reported month on oil stocks by IEA) increased by 12.1 mln bbl or 0.4% mom to 2.87 bn bbl. Total OECD crude oil inventories decreased by another 10.8 mln bbl or -1.0% mom to 1.054 bn bbl, while total OECD oil products stocks rose by 21.3 mln bbl or 1.5% mom. The same time in comparison with a year ago figures total OECD commercial oil stocks in September 2018 were lower by 94.0 mln bbl or -3.2% yoy. Inventories of crude oil in OECD states tumbled by 107.2 mln bbl or -9.2% yoy, while stocks of oil products even slightly built up by 6.5 mln bbl or 0.4% yoy.

Total commercial crude oil stocks in the USA in December 2018 slightly fell by 1.7 mln bbl or 0.4% comparing to the previous month. Despite to negative monthly dynamics the figure remained close to yearly high. Comparing to a year ago level crude oil stocks in the USA in December 2018 grew up by 17.0 mln bbl or +4.0% yoy. The level of December 2018 is roughly 70 mln bbl less relative to the peak of US crude oil inventories that took a place in April 2016 (512 mln bbl).

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