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Oil Market Report - October 2019

EXECUTIVE SUMMARY

Crude oil prices averaged lower in October 2019 on both sides of the Atlantic as market participants shifted their focus from concerns about supply disruptions that had pushed oil prices considerably higher in September to worries related to the risks and uncertainties regarding world economy this and next years. To be more precise, the ICE Brent benchmark was on average $2.65 or 4.3% mom lower in October 2019 (at $59.63/b) relative to an average price of the previous month. Year-to-date the ICE Brent crude oil was $9.37 or 12.7% lower, compared with the same period a year earlier. The significant spike in freight rates in late September and the first part of October pressured prompt oil prices further and limited crude demand for prompt loading months. The rise of US crude oil stocks in October amid low US refinery utilization rates also weighed on oil prices.

Nonetheless, oil prices recovered slightly in the second part of October 2019 on improving optimism regarding US-China trade negotiations and Brexit, in addition to retreating freight rates of major routes from their high levels. Furthermore, geopolitical developments in the Middle East and unplanned supply disruptions in several regions, such as the North Sea, Canada and Latin America, limited oil price declines.

The upward movement in crude oil prices continued in the first half of November 2019 as well, so by the middle of the month crude benchmarks recovered close to the highest levels over last 2 months. Thus, the ICE Brent crude oil demonstrated very healthy growth of 8.4% or $5.0 per barrel during the period under report to $63.9 per barrel. The NYMEX WTI benchmark added 7.3% or $3.9 per barrel within the same period of time and close the period at $57.7 per barrel.

Total crude oil output by the OPEC as a whole in October 2019 rose substantially by 1.11 mln bbl / d in compare to the volume of the previous month or solid 3.9% mom. Obviously, Saudi Arabia was the main source of OPEC’s total production monthly growth within the month under consideration.

Crude oil output by the kingdom in October 2019 built up by 1.23 mln bbl / d relative to the volume of September 2019, or 14.2% mom. So, it had taken less than a month for Saudi Arabia to restore its production in full to the before-strike level of approximately 9.8 mln bbl / d that was in place since March 2019. Among other states of the OPEC four more countries demonstrated positive monthly rates of production growth in the month under consideration, namely Libya, Algeria, Gabon and Venezuela. To speak more specific, crude oil production in Libya in October 2019 rose by 60 thsd bbl / d relative to the level of the previous month or 5.4% mom. Algeria ramped up its crude oil output by 50 thsd bbl / d or 4.9% mom. Gabon extracted 30 thsd bbl / d or impressive 15.8% mom more oil than it did in the previous month. And Venezuela increased its production by the same 30 thsd bbl / d or 4.5% mom. Meanwhile, in two OPEC states, namely Ecuador and Iraq, material monthly contraction of crude oil output were recorded in October 2019. Thus, oil production in Ecuador in the month under review suddenly collapsed by 120 thsd bbl / d or astonishing 22.2% mom, while Iraq decreased its level of oil production by 100 thsd bbl / d or 2.1% mom relative to the volume of the previous month. The Energy Intelligence Group (EIG) has postponed publication of its monthly report “Oil Market Intelligence” for November 2019 out of the period under report. So, the most recent data on hands from the EIG we had were numbers for September 2019.

Total oil production around the globe in September 2019 decreased by 0.8% mom or 770 thsd bbl / d in compare to the volume of the previous month. However, relative to one year ago level cumulative global crude oil production in September 2019 also contracted by 0.8% yoy or 827 thsd bbl / d. Cumulative production of oil by the non-OPEC producers in September 2019 remained practically the same as it was in the previous month, monthly change was equal to -9 thsd bbl / d. However, from the year-over-year standpoint the non OPEC group of oil producers as a whole ramped up its output in September 2019 by 3.3% yoy or more than 2.0 mln bbl / d. It is obvious that such a strong divergence of yearly changes in oil production in inside and outside the OPEC is caused mainly by the OPEC+ agreement to curb oil output to support oil prices. The most substantial growth of crude oil production among non-OPEC states in September 2019 relative to the previous month again took a place in the USA, where output of crude oil expanded by 1.1% mom or 142 thsd bbl / d. Besides the USA significant monthly increase of output in the month under consideration was also observed in Brazil (+2.6% mom or +74 thsd bbl / d) and other ex USSR group of states (+4.7% mom or +118 thsd bbl / d). The main cutback of crude oil production in September 2019 in compare to August 2019 was recorded in Canada where production of crude oil tumbled by 5.0% mom or 227 thsd bbl / d and Russia that reduced its output by 1.1% mom or 120 thsd bbl / d.

Crude oil production in the USA in October 2019 rose substantially by 175 thsd bbl / d or 1.4% in compare with the previous month. From the year-over-year standpoint, crude oil production in the USA in October 2019 was formidably higher than it was one year ago in October 2018. The annual rate of growth in the month under review was equal to 1.55 mln bbl / d or impressive 14.0% yoy.

Total production of shale oil in the USA in October 2019 rose by another 96 thsd bbl / d or 1.1% 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 total shale oil production in the USA in October 2019 expanded by impressive growth rate of 11.0% yoy or nearly 0.9 mln bbl / d in absolute terms. However, monthly growth in shale oil production in the USA in the month under review was slightly lower than the overall figure of crude oil production for the country. So, the share of shale oil in cumulative crude oil output in the USA in October 2019 marginally decreased by 0.2 p.p. to 71.7%.

In its recent monthly report the IEA hasn’t changed its headline oil demand growth assessments for both 2019 and 2020. Both numbers remained the same, at 1.0 mln bbl / d and 1.2 mln bbl / d, respectively. According to the agency, global oil demand in 3Q 2019 increased by 1.1 mln bbl / d year-on-year, more than double the 435 thsd bbl / d seen in 2Q19. China’s demand increased by 640 thsd bbl / d yoy in 3Q 2019, the biggest contributor to global growth. In 4Q 2019, the agency expect further acceleration in global growth to 1.9 mln bbl / d, supported by a comparison with a weak 4Q 2018, lower yoy prices and robust US petrochemical demand. However, the IEA accepted that the health of the global economy in 2020 remains uncertain in spite of recent positive news about the US-China trade dispute. This year, there was a big difference in demand growth in the two biggest oil markets. In the US, there has been almost no growth in the first three quarters of 2019, while China has grown by 0.6 mln bbl / d on average. Moving into 2020, US growth is expected to pick up to 190 thsd bbl / d while China slows to 375 thsd bbl / d.

Total commercial stocks of oil and oil products in OECD states in August 2019 continued to expand and built up by another 20.8 mln bbl or 0.7% mom relative to the volume of the previous month. So, August became the 5th month in a row of total oil inventories growth in OECD states. Nevertheless, the expansion of stocks within the month under review took its place only in stocks of refined oil products, while total crude oil inventories in OECD states declined again. To be more precise, total inventories of refined oil products in August 2019 increased considerably by 32.6 mln bbl or 2.2% mom, while total inventories of crude oil shrank by 14.4 mln bbl or 1.3% mom within the same period of time.

Total commercial inventories of crude oil in the USA in October 2019 reversed to the North and expanded by 16.2 mln bbl or sizeable 3.8% mom relative to the volume of September 2019. So, the tendency of crude oil inventories decline in the USA turned up to be short-lived and lasted for less than half a year. In compare to the volume of October 2018 total commercial inventories of crude oil in the USA in the month under review expanded by 12.8 mln bbl or 3.0% yoy.

The stocks of crude oil in Cushing storage in Oklahoma (the basis for NYMEX WTI crude oil futures) skyrocketed in October 2019 by 5.3 mln bbl relative to the volume of the previous month or impressive 13.0% mom. However, it’s worthwhile to emphasize that the indicator just returned back close to the average monthly level line over last 5 years from the lowest level over last 10 months.

Total floating crude oil stocks worldwide grew up very significantly in October 2019 after material contraction within the previous month and expanded by 23.7 mln bbl or impressive 51.7% mom. According to the Vortexa Ltd. Data, the indicator almost reached 70.0 mln bbl, the level that has not being seen for more than 2 recent years. The current level of stocks is materially higher than the average level for this month of the year over last 3 years. From the standpoint of year-over-year dynamic, total volume of crude oil that held of floating storages in October 2019 also expanded considerably by 28.3 mln bbl or 68.3% yoy relative to the level of October 2018.

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