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Oil Market Report - March 2019

EXECUTIVE SUMMARY

The price of the ICE Brent crude oil benchmark grew up by another $1.7 or 2.6% mom in March, 2019 and nearly reached the level of $70.0 in the end of the 2nd decade. After a short respite during the last week of the month the price of Brent benchmark finally overcame this level on early April. The main factor of support for crude oil prices in March, 2019 were supply concerns as Saudi Arabia cut its production to the lowest level in over two years to help the cartel meet the requirements of the new OPEC+ agreement and Venezuela continued to lose its crude oil output with a very rapid pace. Nevertheless, despite to the fact that ICE Brent benchmark continued to go north and printed some marginal new highs in early April we see more and more signs that the rally on oil market runs out of steam, so only serious supply-side disruptions can support further growth of crude oil futures from their current levels.

Crude oil production by OPEC states in March, 2019 fell by another 295 thsd bbl / d or 1.0% mom to 30.38 mln bbl / d that is the lowest level for more than 4 years. Last time less crude oil was extracted by OPEC as the whole during a single month as early as in January, 2015. The cartel’s members continued to curb their production to satisfy the requirements of OPEC+ agreement that was conducted in December, 2018 in attempt to sustain oil prices. And as we see it such a policy really has brought some relief to the oil market. The main cutback among OPEC states in March, 2019 was made by Saudi Arabia that produced 280 thsd bbl / d or 2.8% mom less oil and by Venezuela where oil production tumbled by another 180 thsd bbl / d or 16.8% mom. Iraq, Iran and U.A.E. also decreased their production of crude by 70, 30 and 20 thsd bbl / d or 1.5% mom, 1.1% mom and 0.7% mom respectively. The same time not all of the OPEC’s members were solid in aspiration to follow the cartel’s policy to limit crude oil production. In particular, an oil output in Libya and Nigeria in March, 2019 grew up by 200 thsd bbl / d or 22.2% mom and by 90 thsd bbl / d or 4.9% mom respectively.

According to the latest EIG data the overall global oil production in February, 2019 nearly unchanged relative to the previous month and remained at the level of 97.9 mln bbl / d. The cutback of crude oil production in OPEC states by 334 thsd bbl / d or 1.1% mom in the reported period was fully compensated by production growth in nonOPEC oil producers by 301 thsd bbl / d or 0.6% mom. As for the dynamics of natural gas liquids (NGLs) then production of this kind of oil in both OPEC and non-OPEC group in February, 2019 nearly unchanged as well in comparison with the previous month. Thus, February, 2019 didn’t bring any dramatic changes in global oil supply side. Surprisingly, the most essential growth of crude oil output among non-OPEC producers in February, 2019 were recorded in the UK where oil production built up by 102 thsd bb / d or 10.1% mom and in Egypt, where oil production increased by 68 thsd bbl / d or 12.2% mom. Norway, the USA and Brazil were also among the states with growing crude output with growth by 41 thsd bbl / d or 2.8% mom, 26 thsd bbl / d or 0.2% mom and 25 thsd bbl / d or 1.0% mom respectively. The main cutback among non-OPEC oil producers in February, 2019 was observed in China (-32 thsd bbl / d or -0.8% mom), Kazakhstan (-23 thsd bbl / d or -0.8% mom) and Russia (-16 thsd bbl / d or -0.1% mom).

Crude oil production in the USA in March, 2019 increased by another 125 thsd bbl / d or 1.0% mom in accordance with weekly reports of US DOE and for the first time in history exceeded the level of 12.0 mln bbl / d. However US DOE provided slightly less figures of total crude oil production in the USA in comparison with the EIG. In reference with the latter one, crude oil production in the USA overshot the level of 12.0 mln bbl / d as far back as in January, 2019. In compare with the volume of crude extraction in March, 2018 oil production in the USA in March, 2019 skyrocketed by remarkable 16.1% yoy or 1.68 mln bbl / d. Production of NGLs in the USA in March, 2019 continued to decrease and fell by another 71 thsd bbl / d or 1.6% mom. Meanwhile NGLs output in the USA in the reported month was 14.4% yoy 566 thsd bbl / d higher than it was one year ago in March, 2018. On the whole NGLs are now accounted for roughly 27.1% of total oil production in the USA.

In March the IEA reported preliminary figures on commercial oil inventories in OECD group for January, 2019. In compliance with the released data overall commercial stocks in OECD countries in January, 2019 slightly grew up by 8.5 mln bbl or 0.3% mom. More particularly, commercial inventories of crude oil increased by 20.3 mln bbl or 1.9% mom, while inventories of refined oil products decreased by 13.6 mln bbl or 0.9% mom. Considering yearly pace of changes in oil inventories the overall figure increased by minor 6.3 mln bbl or 0.2% yoy. The same time inventories of crude oil practically unchanged (+1.4 mln bbl or 0.1% yoy) while inventories of processed oil products decreased by 13.5 mln bbl or 0.9% yoy.

Total commercial inventories of crude oil in the USA in March, 2019 slightly increased by 3.7 mln bbl or 0.8% mom relative to the previous month in accordance with weekly data provided by US DOE. Comparing to one year ago volume the indicator in March, 2019 built up by 24.2 mln bbl or 5.7% yoy. Relative to the peak level of US crude oil inventories that was recorded in April, 2016 (512 mln bbl) the final number for March, 2019 was roughly 62.5 mln bbl less. Crude oil stocks in Cushing oil storage in Oklahoma that is the basis for WTI oil futures slightly increased by 0.5 mln bbl or 1.0% mom relative to the value of the previous month in March, 2019.

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