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Oil Market Report - November 2019

EXECUTIVE SUMMARY

Crude oil prices rebounded in November 2019 to settle at their highest level since last July, on a monthly basis, mainly driven by optimism and positive expectations for a trade agreement between the US and China, as well as an improved outlook for global oil demand amid better-than-expected economic indicators in some major economies. Oil prices rose further on strong performances in equity markets following signs of progress in trade negotiations that raised optimism over the global economy. Oil markets were also supported by the continuing production adjustments from OPEC and Non-OPEC countries participating in the ‘Declaration of Cooperation’, with strong conformity levels that contribute to balancing the global oil market.

The rally on crude oil markets continued in the first half of December 2019 as well, initially fueled by expectations of further production cuts by OPEC+ countries and then by the decision itself. As of December, 17 the ICE Brent nearby futures rose by approximately $5.0 per bbl since the month start and stepped out to the area above $66.0 per bbl. Last time these levels on the oil market were seen during a mid-September 2019 spike caused by a drone strike on Saudi Arabia’s major oil facilities.

On 6 December, faced with potential oversupply in early 2020, countries participating in the OPEC+ agreement took a step to address this imbalance by deepening their cuts from 1.2 mb/d to 1.7 mb/d. Saudi Arabia once again showed its willingness to shoulder a greater burden by volunteering an additional reduction of 0.4 mb/d to take the total cut to 2.1 mb/d, effective 1 January 2020. This implies a reduction in supply of 500 kb/d from current levels. Despite the additional curbs and a reduction in forecasts of 2020 non-OPEC supply growth to 2.1 mb/d, global oil inventories could build by 0.7 mb/d in 1Q20.

Total crude oil output by the OPEC as a whole in November 2019 marginally declined in compare to the level of the previous month by 110 thsd bbl / d or 0.4% mom. But in contrast with one year ago number the volume of crude oil production by the OPEC in November 2019 was lower by very formidable 3.45 mln bbl / d or impressive 10.4% yoy. The main cutback in crude oil production within the OPEC during the month under consideration was recorded in Angola, where an output of crude oil dropped by 60 thsd bbl / d or material 4.5% mom. Iran and Libya also were the states with falling on monthly basis oil production in November 2019. The output was lower by 40 thsd bbl / d or 1.9% mom and by 30 thsd bbl / d or 2.5% mom in compare with the levels of the previous month respectively. Slightly less crude oil in November 2019 relative to October 2019 was produced in Gabon (-20 thsd bbl / d or -10.0% mom), Nigeria (-20 thsd bbl / d or -1.0% mom) and Saudi Arabia (-10 thsd bbl / d or -0.1% mom). The only OPEC states with growing crude oil production in the month under review were Ecuador, where the output ramped up by 50 thsd bbl / d or solid 10.6% mom, and Venezuela, whose production rate slightly increased by 10 thsd bbl / d or 1.4% mom.

Total oil production around the globe in November 2019 increased by 0.4% mom or 390 thsd bbl / d in compare to the volume of the previous month in obedience to the EIG data. The cumulative global crude oil production in the month under consideration also contracted relative to one year ago level by 0.9% yoy or 890 thsd bbl / d. The most substantial growth of crude oil production among non-OPEC states in November 2019 relative to the previous month suddenly 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 the month 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 in November 2019 were also among the non-OPEC states that pumped more oil than they did in 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 in November 2019 that produced less oil than they did in the previous month. In Mexico an output of crude oil in the month under review declined by 13 thsd bbl / d or 0.8% mom in compare to the volume of the previous month and in China monthly rate of production shrinkage was equal to 3 thsd bbl / d or 0.1% mom.

Crude oil production in the USA in November 2019 extended substantially by another 250 thsd bbl / d or 2.0% in compare with the previous month, in accordance with the US DOE information, and the month under review has become the 4th month in a row of growing output in the USA. From the year-over-year standpoint, crude oil production in the USA in November 2019 was considerably higher than it was one year ago in November 2018. The annual rate of growth was equal to 1.15 mln bbl / d or solid 9.8% yoy.

A cumulative production of shale oil in the USA in November 2019 rose by another 129 thsd bbl / d or 1.4% mom in compare to the value of the previous month in compliance with the most recent data provided by Rystad Energy (a consultant agency). In comparison to one year ago figures a total production of shale oil in the USA in November 2019 expanded by impressive 11.2% yoy or more than 0.9 mln bbl / d in absolute terms.

The IEA revealed its assessments of a demand for oil worldwide in the 3rd quarter of 2019. According to the data, total demand for oil around the globe in the 3rd quarter of 2019 demonstrated a healthy growth of 1.79 mln bbl / d or 1.8% qoq in compare with the number for the 2nd quarter of 2019. Relative to the level of the 3rd quarter of 2018, the global demand for oil increased in the period under review by 1.09 mln bbl / d or 1.1% yoy. It is worthwhile to mention that the 3rd quarter of 2019 has become the 2nd quarter in history when global demand for oil exceeded the threshold of 100 mln bbl / d. Surprisingly, oil demand growth in the period under consideration was much stronger in developed OECD countries, while demand growth in the non-OECD group as a whole was rather humble. To speak in greater details, an aggregate demand for oil in the OECD group in the 3rd quarter of 2019 rose by 1.35 mln bbl / d or very solid 2.9% qoq relative to the previous quarter. Meanwhile, a total demand for oil in the non-OECD group grew by 0.44 mln bbl / d or just 0.8% qoq within the same period of time.

Total commercial stocks of oil and oil products in OECD states in September 2019 reversed and decreased by 38.9 mln bbl or 1.3% mom, pursuant to the most recent IEA data. So, the upward tendency in total commercial stocks of oil and oil products volume that prolonged over last 5 months finally has been broken. Negative monthly dynamic was observed both in volumes of crude oil inventories and in volumes of refined oil products stocks. In particular, total inventories of processed oil products in September 2019 contracted by 25.8 mln bbl or 1.7% mom, while total inventories of crude oil decreased slightly by 7.5 mln bbl or 0.7% mom within the same period of time.

Total commercial inventories of crude oil in the USA in November 2019 continued to expand for the 2nd week in a row and went up by another 8.2 mln bbl or 1.9% mom relative to the volume of October 2019. Meanwhile, total commercial inventories of crude oil in the USA in the month under review expanded by 3.9 mln bbl or humble 0.9% yoy in compare to the volume of November 2018. On the contrary to the dynamic of volume of overall commercial crude oil stocks in the USA, inventories of crude oil in Cushing storage in Oklahoma (the basis for NYMEX WTI crude oil futures) in November 2019 declined by 2.2 mln bbl relative to the volume of the previous month or 4.8% mom. So, the figure again dipped down below the average monthly level line over last 5 years. By the same token, the inventories of crude oil in Cushing in November 2019 were higher by material 5.6 mln bbl or 14.6% yoy then they were November 2018.

An aggregate floating crude oil inventories worldwide decreased by 6.9 mln bbl or 10.5% mom in November 2019 after very significant growth during the previous month. According to the Vortexa Ltd. data, the indicator by the end of the month retreated back below 60.0 mln bbl. Nevertheless, the current level of global floating stocks still exceeds the average level for the month of a year over last 3 years. As for the year-over year dynamic, a total volume of crude oil that held of floating storages in November 2019, on the contrary, demonstrated a very strong rate of growth. To be more numeric, the volume of floating inventories in the month under consideration was 17.3 mln bbl or more than 40% yoy higher than it was one year ago.

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