HomeResearch and NewsOil Market Report - Jule 2021

Oil Market Report - Jule 2021

EXECUTIVE SUMMARY

Crude oil prices extended their rally in June 2021 for the second consecutive month and reached their highest levels since October 2018 on daily basis, as investors turned increasingly optimistic about the outlook for oil demand recovery and expectations of a stronger global oil market in 2H21. On a monthly average, ICE Brent front-month contract rose 7.5% higher to settle at its highest since October 2018, while NYMEX WTI rose 9.5% to its highest since November 2014. The market optimism was bolstered by accelerating vaccination rates in several countries and the easing of travel restrictions. Moreover, data indicated a continued recovery in road transportation, specifically in the US and Europe, which coincides with the start of the holiday driving season. Furthermore, supportive economic data, including US employment; higher vaccination rates; and the continued easing of COVID-19-related mobility restrictions are supporting demand higher. Data showing a further global decline in new COVID-19 infections, including in India and other Asian countries, added confidence to the market, brightened the oil demand outlook and supported oil prices higher. The strengthening oil market was reflected in the continued drop in global oil stocks, specifically the sharp decline in US crude oil stocks in recent weeks. The decision of OPEC and non-OPEC producers in the Declaration of Cooperation (DoC) on 1 June to maintain their production adjustments unchanged for July 2021 added support to the market. So, the major crude oil benchmarks again closed the month of June 2021 deeply in the green zone with the ICE Brent adding nearly $5.3 / bbl, or +7.6%% MoM, and the NYMEX WTI rose even more by $7.2 / bbl, or +10.8% MoM. Nonetheless, the surge of daily infections of the COVID-19 Delta variant in several countries including in the UK, Russia, and some Asian and African countries raised concerns about a potential reinstatement of travel restrictions and slowing oil demand recovery, which weighed on market sentiment and limited oil price gains. The US dollar strengthened against other main currencies after the Federal Reserve signaled it might raise interest rates as soon as 2023, which also limited oil price gains. By late June, the US dollar index rose to its highest since mid-April against a basket of other currencies.

In the course of the first two decades of July 2021, the oil market was driven mainly by the news from OPEC+, as the scheduled meeting on July, 1 was eventually called off without reaching the agreement to extend the output that supported the prices on the levels achieved in June. However, the market crushed down within the 3rd week of July, as an extraordinary OPEC+ meeting was held and resulted in the new agreement to adjust upward the OPEC+ overall production by 0.4 mln bbl / d on a monthly basis starting August 2021 until phasing out the 5.8 mln bbl / d production adjustment. The negative sentiment on the market was amplified with the overall risk-off stance on the financial markets linked with fears regarding the 3rd wave of COVID-19 pandemic. All in all, both ICE Brent and NYMEX WTI benchmarks ended the period under report deep in the red zone. The ICE Brent front-month futures contract dropped by nearly $4.8 / bbl, or almost -6.5% as compared to the level of June 18, 2021, and the NYMEX WTI nearest contract tumbled by $5.1 / bbl, or -7.1% over the same period of time.

In June 2021, the crude oil output in the OPEC as a whole experienced a solid expansion by 855 thsd bbl / d in monthly terms, or +3.3% MoM. The output continued to ramp up for 2 months in a row, so the volume of the production within the cartel rose to its peak level throughout last 12 months of almost 26.5 mln bbl / d. The main reason behind this continuous crude oil output growth in the OPEC was the decision of the OPEC+ group to gradually return 2 mln bbl / d of the production adjustments to the market within several months. On an annual basis, the oil production in the OPEC as a whole in June 2021 exploded by more than 3.9 mln bbl / d relative to the volume of June 2020, or shocking +17.5% YoY, the fastest annual growth of the production over more than two decades. However, it was attributed mainly to the very low base of June 2020, when the output of the cartel was reduced to the levels not seen in decades to deal with COVID-related severe demand destruction in 2Q20. The most rapid monthly growth of the output during the month under report was recorded in Saudi Arabia, as the country proceeded to abandon its additional voluntary supply adjustment of 1.0 mln bbl / d that was intact during 1Q21. So, the crude oil output in the kingdom continued to expand for the 2nd month in a row and built up by another 5.8% MoM, or +490 thsd bbl / d relative to the volume of May 2021. The combined production growth over last 2 months in Saudi Arabia reached 840 thsd bbl / d, so the kingdom nearly completed its task.

The 18th OPEC and non-OPEC Ministerial Meeting was scheduled to take place on July 1, 2021, but was extended multiple times and finally called off on July 5, 2021 without an agreement being reached. During the preceding Meeting of the Joint Ministerial Monitoring Committee (JMMC) held on July 1, 2021, the group discussed lifting production by 0.4 mln bbl / d each month from August to December and an extension of the agreement until the end of 2022. The JMMC’s proposal was first endorsed by Saudi Arabia and Russia. Other countries such as Mexico, voiced initial concerns regarding the proposal. During the final day of meetings on July 5, 2021 all countries (OPEC Members and Non-Members), except the U.A.E. started to come onboard regarding the proposal. According to internal sources, the U.A.E. was unwilling to link immediate extension of production increases with a long term agreement into 2022. Representatives of the U.A.E. were seeking to increase its 2020 baseline (from which the cuts/increases are currently being calculated), as the country has invested heavily in expanding production capacity. When the 2020 baseline was negotiated, the U.A.E. had already threatened to leave the OPEC+ group, seeking to increase its share of production. However, just a couple of weeks later the 19th OPEC+ meeting was held and concludes to adjust upward the OPEC+ overall production by 0.4 mln bbl / d on a monthly basis starting August 2021 until phasing out the 5.8 mln bbl / d production adjustment, and in December 2021 assess market developments and Participating Countries’ performance. Also, the meeting agreed to continue to adhere to the mechanism to hold monthly OPEC and non-OPEC Ministerial Meetings for the entire duration of the Declaration of Cooperation, to assess market conditions and decide on production level adjustments for the following month, endeavoring to end production adjustments by the end of September 2022, subject to market conditions. The next 20th meeting was scheduled for September 1, 2021.

The total production of oil worldwide kept on to expand in June 2021 for the 4th month in a row and rose by another 2.06 mln bbl / d in compare to the volume of the previous month, or +2.2% MoM. The global output rose to its new peak level since April 2020. Moreover, the global oil production showed even more impressive positive dynamics during the month under review on a yearly basis, as the oil production around the globe plunged to the lowest level over more than 5 years in May-June 2020. So, due to the effect of the low base, the production of oil worldwide in June 2021 again was higher by dramatic 8.15 mln bbl / d relative to the volume of June 2020, or +9.2% YoY. The most material expansion of the oil output on an absolute basis in the month under review was registered in Canada. The production in this state jumped by 660 thsd bbl / d relative to one months ago level, or incredible +13.1% MoM, the fastest monthly growth of the output over last 3 years. In relative terms, the most material rise of oil production in the month under consideration was experienced in Norway, where the output expanded by 260 thsd bbl / d, or +13.9% MoM, the most impressive monthly growth throughout previous year. Brazil also demonstrated a comparable rate of its oil output expansion in June 2021 as against the month prior. The extraction of oil in this country ramped up in June by 12.6% MoM, or +497 thsd bbl / d, to its peak print of 4.45 mln bbl / d within the whole history of observations. From a monthly dynamic point of view, the oil production in Brazil increased throughout the 4th consequent month. Such countries as India and Malaysia likewise showed a faint increase of their output of oil in June 2021 on a monthly basis. On the other hand, such oil-producing countries as the UK, Argentina, Colombia, China, Australia and Russia, experienced negative dynamics of their oil output in June as compared to May. Thus, the output of oil in China contracted in June 2021 by 35 thsd bbl / d in monthly terms, or -0.7% MoM, while in Russia the production of oil went down by 20 thsd bbl / d, or insignificant -0.2% MoM, the 2nd month of negative performance in a row. But the most formidable monthly decrease of oil production, both in absolute and relative terms, in June 2021 was recorded in the United Kingdom. In numbers, the extraction of oil in the United Kingdom shrank by severe 10.3% MoM, or -96 thsd bbl / d in comparison to one month ago level.

The total oil output in the USA jumped in June 2021 by a very profound amount of 1.05 mln bbl / d relative to the month prior to the highest level since March 2020, or +6.9% MoM, nearly + 3.0 StD of monthly rates of growth of the indicator over last decades. All the monthly growth of the cumulative oil production in the USA in June 2021 was attributed to the serious expansion of the NGLs production, while the output of crude oil in the country exhibited only a shy growth comparing to the previous month. In particular, the production of NGLs in the USA continued to rose for the 2nd month in a row and this time skyrocketed by 901 thsd bbl / d relative to the volume of May 2021, or overwhelming +21.4% MoM. The same time, the output of crude oil in the USA in the month under review increased by only 150 thsd bbl / d, or much less impressive +1.4% MoM.  However, on an annual basis, the growth of the production in the USA in June 2021 was minor. The production expanded by only 63 thsd bbl / d, or +0.4% YoY.

Total shale oil output in the USA expanded in June 2021 by 1.2% MoM, or +98 thsd bbl / d in compare to the volume of May 2021, and came up the highest score in the course of recent year equal to 8.32 mln bbl / d. June was the 4th month of the shale oil production expansion in the USA on a monthly basis. On an annual basis, the shale oil output demonstrated more robust positive dynamics and built up modestly by 761 thsd bbl / d, or +10.1% YoY. On an annual basis, the shale oil output exhibited a growth over 2 months in a row. The majority of shale oil deposits in the USA exhibited positive dynamics of the output in June 2021 compared to the level of May 2021. The strongest growth of the production of shale oil in the month under consideration was recorded on Permian deposit as the largest one among US shale sweet pots. Thus, the shale oil output on Permian deposit extended by 45 thsd bbl / d, or almost +1.0% MoM, and fetched up its peak value in the course of previous 12 months equal to 4.79 mln bbl / d. The production on the deposit exhibited an increase for 4 months in a row. As of the end of June 2021, Permian site was accounted for nearly 57.5% of all shale oil production in the USA.

The International Energy Agency (IEA) has released finally detailed statistics on consumption of crude oil and refined oil products around the globe for the 1st quarter of 2021. In the first quarter of 2021, the total consumption of oil and oil products around the world decreased by 1.3 mln bbl / d on a quarter-over-quarter basis, or
-1.4% QoQ. However, the demand weakening was mainly attributed to the seasonal factor.
By the same token, on an annual basis, the aggregate consumption of oil worldwide in the 1st quarter of 2021 was also lower than it was one year ago and felt by 0.59 mln bbl / d comparing to the 1st quarter of 2020, or -0.6% YoY, while relative to the peak demand volume of the 4th quarter of 2019 it was lower by 7.29 mln bbl / d, or -7.2%. In absolute terms, the most formidable decline of the demand in the first quarter of 2021 was observed in the USA. The consumption of oil in this country weakened by 370 thsd bbl / d in the quarter under review, or almost -2.0% QoQ. In relative terms, the most significant fall of consumption in the 1st quarter of 2021 was observed in major European countries (FR, GE, UK, IT, SP). The demand for oil in Europe TOP-5 states eased by 370 thsd bbl / d quarterly, or -5.3% QoQ. Brazil exhibited a considerable contraction of the demand in the first quarter of 2021 on a quarterly basis as well. The demand in the country dropped by 160 thsd bbl / d, or -5.1% QoQ. Such countries as Canada and China exhibited likewise a moderate contraction of the demand in the 1st quarter of 2021. From a quarterly movement standpoint, the consumption in Canada went down by 40 thsd bbl / d, or nearly -2.0% QoQ, the 2nd quarter of decline in a row. The demand in China showed a contraction of 250 thsd bbl / d, or -1.7% QoQ. On the other hand, the total demand for oil showed a sober growth in such states as Mexico, India and other Asian countries as a whole. In particular, on a quarter-over-quarter basis, the demand in Mexico in the 1st quarter of 2021 rose by 30 thsd bbl / d, or +1.8% QoQ. As for a quarterly The same time, the demand for oil in India expanded by 70 thsd bbl / d, or +1.4% QoQ. Moreover, the demand in India went up to its maximum print for recent year equal to 5.09 mln bbl / d. In absolute terms, the most rapid expansion of the oil consumption in the first quarter of 2021 was showed in Japan. The demand in Japan expanded by 190 thsd bbl / d, or solid +5.4% QoQ, and came up its peak mark over recent year equal to 3.69 mln bbl / d. In relative terms, the most material growth of the consumption in the first quarter of 2021 was registered in Korea. The consumption in Korea widened by 140 thsd bbl / d, or impressive +5.9% QoQ, the most fastest quarterly growth over recent 5 years. The consumption in Korea ramped up within consequent 2 quarters and fetched up its peak mark for preceding 12 months equal to 2.52 mln bbl / d.

According to the reviewed IEA data, total commercial stocks of crude oil and refined oil products in OECD states marginally expanded in April 2021 as compared to March 2021, although the initial estimate of change was negative and rose by 0.5 mln bbl, or less than +0.1% MoM. So, April 2021 was the first month out of last 10, when global commercial stocks of crude oil and petroleum products expanded on a monthly basis. Nevertheless, the volume of the stocks in OECD countries remained close to pre-COVID levels. As for year-over-year dynamics of the indicator, the total inventories in the OECD were considerably lower than they were one year ago in April 2020. The annual decline was equal to 196.3 mln bbl, or solid -6.3% YoY. So, total OECD industry stocks fell 1.6 mln bbl below the 2015-19 average for the first time in more than a year. According the IEA, OECD total industry stocks rose by 18.1 mln bbl in May 2021 and stood at 2 945 mln bbl, 75.8 mln bbl below the 2016-2020 average and 10.8 mln bbl below the pre-COVID 2015-19 average. Preliminary June data for the US, Europe and Japan show that industry stocks fell by a combined 21.8 mln bbl.

Total commercial inventories of crude oil and petroleum products in the USA in June 2021 exhibited a decrease of 15.1 mln bbl in contrast to the volume of May 2021, or -1.8% MoM. From a point of view of monthly performance, the stockpiles kept on to contract in the course of 1 quarter in a row. So, the figure achieved its new lowest value over last 12 months equal to 831 mln bbl. Relative to one year ago level, the inventories in the USA demonstrated a fall of 133 mln bbl, or -13.8% YoY, the worst yearly dynamics of the indicator over last 3 years. Recall that the stockpiles reached its all-time high in May-June 2020 when the volume was equal to 964 mln bbl.

Crude oil inventories in the Cushing storage in Oklahoma (the basis for NYMEX WTI crude oil futures) continued to decline in June 2021 for the 8th consequent month and decreased by another 5.3 mln bbl relative to the level of May 2021, or solid -11.6% MoM. The volume of the stocks in Cushing in the month under review sank to the lowest level of 40.3 mln bbl since the start of the pandemic in February 2020 and remained well below an average level for this month of a year over last 5 years. Relative to one year ago level, crude oil inventories in Cushing in June 2021 showed a comparable negative performance and crumbled by the same 5.3 mln bbl, or -11.7% YoY. On a year-over-year basis, the stocks of crude oil in the Cushing storage contracted within consequent 3 months.

The volume of crude oil that held on floating storages around the world went down in June 2021 on a monthly basis after two months of an expansion and shrank by 10.6 mln bbl in compare to May 2021, or -11.3% MoM. The figure dropped to the lowest level since March 2020 of 83.6 mln bbl and for the first time over last 15 months dipped down below an average level for this month of a year over last 5 years. Meanwhile, the global floating inventories felt in June 2021 more severely on an annual basis. The figure collapsed by 133.9 mln bbl, or a shocking rate of -61.6% YoY, the worst annual dynamics of the indicator on records. June was the third consequent month of the global floating inventories of oil decrease in yearly terms.

 Download PDF

oil, investment

Read more

Arbat Capital: Banking Sector Report - June 2021

US banks underperformed the broad market significantly in June 2021, after it demonstrated better dynamics for 8 months in a row. BKX index decreased by 6.3% MoM vs +2.2% MoM of SPX index, the first decline in absolute terms after five consecutive months of positive performance. Absolute June performance was -1.0 std from the mean monthly performance and it is in the bottom 13% since the index inception. 

investment, banks;

Oil Market Report - June 2021

Crude oil prices resumed the upward trend in May 2021 after their stall in April, and recorded six months of gains in the last seven months, increasing by 65% on a monthly basis between October 2020 and May 2021. ICE Brent's first month futures contract rose 4.6% in May relative to April on monthly average, to reach its highest level since May 2019, while NYMEX WTI rose by 5.6% MoM to hit its highest since October 2018. 

oil, investment

Arbat Capital: Banking Sector Report - May 2021

US banks outperformed the broad market again in May 2021, the 8th month in a row of outperformance after five consecutive months of weaker dynamics. BKX index increased by 5.0% MoM vs +0.5% MoM of SPX index, the 4th month in a row of positive absolute performance. Absolute May performance was +0.6 std from the mean monthly performance and it is in the top 24% since index inception. 

investment, banks;