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Oil Market Report - July 2019

EXECUTIVE SUMMARY

Crude oil market in July 2019 continued to move sideways and ended the month with minor changes relative to the end of the previous month, but monthly average prices in July 2019 were higher than they were in June 2019. On a monthly average, both ICE Brent and NYMEX WTI rose, with ICE Brent went up by $1.18 or 2.0% mom to $64.21 per barrel, recording the weakest performance among the benchmarks, while NYMEX WTI crude oil climbed the most by $2.84 or 5.2% mom to $57.55/b. The main reasons of more positive mood at the market in July 2019 were tightening oil supply and risks of oil supply disruptions related to escalating geopolitical tensions in the Middle East that offset bearish sentiment and concerns about softening global oil demand this year.

Total crude oil production by OPEC states in July 2019 again slightly decreased by 130 thsd bbl / d or 0.4% mom and dropped below the level of 30.0 mln bbl / d. Cumulative oil output of the cartel’s members in the month of report fell to the lowest level over 5 last years as the last month before the reported one when OPEC pumped less than 30 mln bbl / d was May 2014. Comparing to one year ago numbers OPEC as a whole extracted 2.45 mln bbl / d or 7.6% yoy less crude oil in July 2019. The most essential cutback of crude oil production among OPEC countries in July 2019 was observed in 3 states, namely Iran, Iraq and Libya. To be more precise Iran produced 70 thsd bbl / d less crude oil in July 2019 relative to June 2019, Iraq extracted 50 thsd bbl / d less crude oil over the same period of time and monthly output contraction in Libya was equal to 50 thsd bbl / d. The only state among OPEC members that increased its crude oil output in July 2019 on monthly basis was Saudi Arabia that pumped 50 thsd bbl / d or 0.5% mom more oil in July 2019 than it did in June 2019.

Total oil production around the globe grew up in July 2019 by 725 thsd bbl / d or 0.7% mom relative to the previous month in accordance with the numbers provided by the EIG. Meanwhile in comparison with one year ago figures cumulative crude oil production around the globe in July 2019 modestly increased by 460 thsd bbl / d or 0.5% yoy. Cumulative oil production by the non-OPEC states in July 2019 grew up by 820 thsd bbl / d or 1.3% mom. On a single-state level the most dramatic changes of crude oil production among non-OPEC states in July 2019 relative to the previous month was recorded in Norway where output of crude oil skyrocketed by impressive 31.8% mom or 339 thsd bbl / d after sharp drop of volumes in the previous month due to temporary factors. Rapid growth of production in the month of report was also achieved in Brazil that expanded its output by healthy 8.4% mom or 216 thsd bbl / d. Significant production growth on monthly basis in July 2019 was also recorded in the UK (+101 thsd bbl / d or +10.2% mom) and in Canada (+102 thsd bbl / d or +2.4% mom).The main cutback of crude oil production in July 2019 was experienced in China (-105 thsd bbl / d or -2.8% mom), Malaysia (-70 thsd bbl / d or -11.7% mom) and in Russia (-58 thsd bbl / d or -0.5% mom). Interestingly, the USA in the reported month was also among the states with falling crude oil output, but the pace of contraction was minor and equal to 0.3% mom.

Crude oil production in the USA in July 2019 moderately contracted by 250 thsd bbl / d or 2.0% mom in accordance with weekly reports of the US DOE. However from the year-over-year point of view the output of crude oil in the USA in July 2019 was substantially higher than it was one year ago, in July 2018. Yearly pace of growth was equal to 1.0 mln bbl / d or solid 9.1% yoy. It is worthwhile to note that the EIG provided slightly different figures of crude oil production in the USA in recent months.

The share of the USA in crude oil output around the globe in July 2019 marginally decreased by 14 b.p. to 14.82% in accordance with the EIG most recent monthly report due to poor production statistics for July 2019 in this country. The dynamic of the US share in cumulative crude oil output by non-OPEC states in the month of report also was negative, the indicator contracted by 34 b.p. and returned closer to the level of 23%.

Total production of shale oil in the USA in July 2019 rose by another 121 thsd bbl / d or 1.4% mom relative to the value of the previous month in compliance with the most recent data provided by Rystad Energy (a consultant agency), despite to negative monthly dynamic of overall crude oil production in the country. In compare to one year ago figures total shale oil production in the USA in July 2019 skyrocketed by more than 1.4 mln bbl / d or impressive 19.6% yoy. Due to shortfall of overall crude oil production in the USA in July the share of shale oil in cumulative crude oil output in the USA by the end of the reported month reached 74.0% that is 2 p.p. higher than it was in the previous month and this is a new historical maximum.

The International Energy Agency (IEA) in its report for July 2019 released preliminary figures on commercial oil inventories in OECD countries for May 2019. Pursuant to the sounded data total commercial stocks of oil and oil products in OECD states in May 2019 modestly increased by 22.8 mln bbl or 0.8% relative to the volume of the previous month. Expansion of stocks was recorded both in stocks of crude oil and in stocks of processed oil products. Thus, crude oil inventories in OECD states in May 2019 grew up by 7.5 mln bbl or 0.7% mom, while inventories of refined oil products expanded by 18.2 mln bbl or 1.3% mom. Meanwhile in term of year-over-year dynamic cumulative commercial stocks of oil and oil products in OECD countries in May 2019 were 2.8% yoy or 78.4 mln bbl higher than they were in the same month of the previous year. In particular, crude oil inventories demonstrated a growth equal to 24.0 mln bbl or 2.1% yoy over last 12 months and inventories of processed oil products built up by 3.8% yoy or 53.1 mln bbl.

Total commercial inventories of crude oil in the USA in July 2019 severely tumbled by 6.8% mom or 31.9 mln bbl relative to the volume of June 2019 in accordance with weekly data released by the US DOE. The figure dropped down to the lowest level over last 9 months and to the minimal level of current year. Meanwhile in contrast with the level of the same month of the previous year (July 2018) total commercial stocks of crude oil in the USA in July 2019 expanded by similar 6.8% yoy or 27.8 mln bbl. The highest level of crude oil inventories in the USA was observed in April 2016 when the figure was equal to 512 mln bbl. In the end of the reported period crude oil stocks were approximately 75 mln bbl or nearly 15% less than the peak level, but close the average level for this month over last 5 years.

Inventories of crude oil in Cushing storage in Oklahoma that is the basis for WTI oil futures also badly dropped in July 2019 by 6.9% mom or 3.6 mln bbl to the lowest level over last 3 months. Nevertheless in compare with one year ago level the volume of inventories in Cushing storage in July 2019 skyrocketed by nearly 120% yoy or 26.5 mln bbl. Despite to recent monthly contraction of inventories, the volume of crude oil stocks in Cushing now exceeds the average level of the reported month over last 5 years.

Total crude oil stocks stored on floating storages (including oil in transportation) around the globe in July 2019 contracted by 9.7% mom or 6.0 mln bbl relative to June 2019 to the level of 56.1 mln bbl that is modestly below 3-years average in accordance with the data provided by cargo-tracking and analytical company Vortexa Ltd. Relative to one year ago level cumulative crude oil inventories on floating storages in July 2019 expanded considerably and added 11.3 mln bbl or 25.2% yoy.

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