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Oil Market Report - December 2019

EXECUTIVE SUMMARY

December 2019 crude oil prices continued to rise on greater optimism about theoutlook for oil market fundamentals, after OPEC and non-OPEC participating countriesdecided to proceed with an additional production adjustment in order to help balance theglobal oil market. Also, crude oil quotes rose in the second part of December 2019 andextended gains following easing trade tensions between the US and China. It wasannounced on 13 December that the parties had reached an interim Phase 1 trade deal,which would reduce tariffs on imports between the two, and suspend any further escalation.

Crude oil prices continued to go to the North during the first week of January 2020 aswell with a culmination point at the levels above $71.0 per bbl. The final sharp spike ofoil prices was encouraged by the news of Iran launching a missile attack on two US militarybases in Iraq on January, 8. However, oil prices pulled back rapidly to the area below $70.0per bbl as the USA confirmed little damage and no casualties and showed no indication ofthe US escalating further the situation between the two countries.

Total crude oil output by the OPEC as a whole in December 2019 continued to godown and declined by another 90 thsd bbl / d or 0.3% mom in compare to the level ofthe previous month. Meanwhile, the volume of crude oil production by the OPEC inDecember 2019 relative to one year ago number was lower by very serious 3.0 mln bbl / dor impressive 9.2% yoy. Excluding September 2019, when Saudi Arabia’s crude oil outputwas dragged down badly due drone’s strike on its major oil facilities, OPEC crude oilproduction in December 2019 was at the lowest level since June 2011.

The main cutback in crude oil production within the OPEC in December 2019 wasrecorded in three OPEC states, namely Iraq, Libya and U.A.E. In the three countries alevel of crude oil production in December 2019 contracted by 60 thsd bbl / d in compare tothe volume of the previous month. In relative terms monthly declining rates were equal to1.3% mom, 5.1% mom and 1.9% mom respectively. Negative monthly output growth withinthe month under consideration was also recorded in such OPEC states as Saudi Arabia (-40 thsd bbl / d or -0.4% mom), Nigeria (-30 thsd bbl / d or -1.6% mom), Venezuela (-20 thsdbbl / d or -2.9% mom) and Algeria (-10 thsd bbl / d or -1.0% mom). Meanwhile, there was acountry within the cartel in December 2019 which increased its crude oil productionmaterially in contrast with the volume of November 2019. This is was Angola, where outputof crude oil jumped by 110 thsd bbl / d or significant 8.6% mom. Another OPEC states withgrowing extraction of crude oil on monthly basis in the month under review were Gabon(+30 thsd bbl / d or +16.7% mom), Ecuador (+30 thsd bbl / d or +5.8% mom), Iran (+10 thsdbbl / d or +0.5% mom) and Kuwait (+10 thsd bbl / d or +0.4% mom).

The Energy Intelligence Group (EIG) has postponed its publication of its monthlyreport “Oil Market Intelligence” for December 2019 beyond the period under report.So, the EIG assessments of crude oil production by states worldwide for December 2019were unavailable at the moment of this report writing. As for the EIG estimates forNovember 2019 then total oil production around the globe in the month under reviewincreased by 0.4% mom or 390 thsd bbl / d in compare to the volume of the previousmonth. Cumulative global crude oil production also contracted relative to one yearago level by 0.9% yoy or 890 thsd bbl / d. The most substantial growth of crude oilproduction among non-OPEC states in November 2019 relative to the previous monthsuddenly took a place in Norway, where output of crude oil grew up by shocking 18.0%mom or 261 thsd bbl / d. Besides Norway significant monthly increase of output in themonth under review was also recorded in the USA (+0.8% mom or +105 thsd bbl / d) and other ex-USSR states (+3.6% or +90 thsd bbl / d). The UK, Oman and Canada inNovember 2019 were also among the non-OPEC states that pumped more oil than they didin the previous month too. Monthly growth rates in these countries were equal to +5.3%mom or +61 thsd bbl / d, +7.0% mom or +57 thsd bbl / d and to +0.9% mom or +37 thsd bbl/ d respectively. There were only two states among major non-OPEC crude oil producers inNovember 2019 that produced less oil than they did in the previous month. In Mexico anoutput of crude oil in the month under review declined by 13 thsd bbl / d or 0.8% mom incompare to the volume of the previous month and in China monthly rate of productionshrinkage was equal to 3 thsd bbl / d or 0.1% mom.

Crude oil production in the USA in December 2019 was flat relative to the level of theprevious month and remained equal to 12.85 mln bbl / d. Despite to a flat monthlydynamic it is worthwhile to mentioned that crude oil production in the USA in the course ofthe month under review continued to be the highest ever in the history. So, it is notsurprising that from the year-over-year standpoint, crude oil production in the USA inDecember 2019 was considerably higher than it was one year ago in December 2018. Theannual rate of growth was equal to 1.2 mln bbl / d or impressive 10.3% yoy.

Totalproduction of shale oil in the USA in December 2019 marginally rose by 32 thsd bbl /d or 0.4% mom in contrast to the value of the previous month in compliance with themost recent data provided by Rystad Energy (a consultant agency). In comparison to oneyear ago level a total production of shale oil in the USA in December 2019 expanded byimpressive 10.1% yoy or nearly 0.85 mln bbl / d in absolute terms. The Permian basincontinued to be the main source of shale oil boom in the USA in December 2019 as theproduction here expanded by another 62 thsd bbl / d or 1.3% mom in contrast to November2019. An annual pace of shale oil production growth in the Permian basin in December2019 was equal to formidable 17.0% yoy that equals to a growth of output by 685 thsd bbl /d in compare with one year ago level.

There was no new public data from the International Energy Agency (IEA) regardingglobal demand for oil during the period under report, as the agency updated itsassessments of demand for oil around the globe on quarterly basis and the latestupdate of demand estimates were made by the IEA in its monthly report forNovember 2019. In regard with the most recent data on the 3rd quarter of 2019, totaldemand for oil around the globe in the period under consideration demonstrated a healthygrowth of 1.79 mln bbl / d or 1.8% qoq in compare with the number for the 2nd quarter of2019. Relative to the level of the 3rd quarter of 2018, the global demand for oil increased inthe period under review by 1.09 mln bbl / d or 1.1% yoy. It is worthwhile to mention that the3rd quarter of 2019 has become the 2nd quarter in history when global demand for oilexceeded the threshold of 100 mln bbl / d.

Also, the IEA hasn’t changed its headline oildemand growth assessments for both 2019 and 2020. Both numbers remained thesame, at 1.0 mln bbl / d and 1.2 mln bbl / d, respectively. According to the agency, oildemand growth in 2020 is forecast to accelerate, supported partly by prices remainingrelatively subdued, higher global GDP growth than last year and by progress in settlingtrade disputes. The IEA see continued strong momentum in non-OECD countries withChina and India demand growing 0.8 mb/d and 0.5 mb/d respectively in November 2019and US demand flat.

Total commercial stocks of oil and oil products in OECD states in October 2019continued to go down and contracted another by 32.4 mln bbl or 1.1% mom,according to the most up-to-date IEA data. However, a negative monthly dynamic tookits place in stocks of refined oil products, while crude oil inventories in the month underconsideration expanded. Thus, total inventories of refined oil products in October 2019shrank by 63.6 mln bbl or solid 4.2% mom relative to the volume of the previous month.The stocks of crude oil in OECD states the same time increased by 24.7 mln bbl or 2.3% mom and reached nearly 1.1 bn bbl.

Total commercial inventories of crude oil in the USA in December 2019 reversed thegrowth and declined by 17.2 mln bbl or modest 3.8% mom in compare with thevolume of November 2019. However, to a main degree the fall of stocks was caused by aseasonal factor as the figure moved along the average monthly level line over last 5 years.By the same token, total commercial inventories of crude oil in the USA in the month underreview contracted on the year-over-year basis too; an annual rate of decline here was equalto 11.5 mln bbl or 2.6% yoy. Along with the dynamic of volume of total commercial crude oilstocks in the USA, inventories of crude oil in Cushing storage in Oklahoma (the basisfor NYMEX WTI crude oil futures) in December 2019 also went down and declined by7.5 mln bbl relative to the volume of the previous month or astonishing 17.1% mom.So, the figure continued to dip down below the average monthly level line over last 5 years.By the same token, the inventories of crude oil in Cushing in December 2019 lastly beganto shrink on the year-over-year basis as well. The figure decreased by 5.6 mln bbl ormaterial 13.4% yoy relative to the level of December 2018.

Total floating crude oil inventories around the globe continued to go down andmarginally decreased by 0.3 mln bbl or tiny 0.4% mom in December 2019 relative tothe volume of the previous month. According to the data, provided by Vortexa Ltd., thecurrent level of global floating stocks sank below the average level for December over last 3years as usually the indicator demonstrates significant growth during the last month of ayear. From the point of view of the year-over-year dynamic, total volume of crude oil thatheld on floating storages in December 2019 was flat, although on regional level floatingcrude oil inventories showed material movements.

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