After a period of volatility, crude oil prices were higher on average in the month of March 2021, extending previous monthly gains after investors turned more optimistic about the global oil demand outlook and were anticipating a rapid tightening of oil market fundamentals amid restrained global oil supplies.
EXECUTIVE SUMMARY
After a period of volatility, crude oil prices were higher on average in the month of March 2021, extending previous monthly gains after investors turned more optimistic about the global oil demand outlook and were anticipating a rapid tightening of oil market fundamentals amid restrained global oil supplies. Positive market sentiment strengthened further amid signs that oil consumption is recovering in major economies along with improving mobility data in Europe and North America. The oil market was also driven by a firm US equity market after the $1.9-trillion US stimulus bill was signed into law. This is expected to boost the economy and oil demand, as well as benefit global industrial production and trade. Oil prices rose further after an attack on large Saudi Arabia oil facilities at Ras Tanura raised geopolitical risk concerns. Nonetheless, worries eased after oil output appeared to remain uninterrupted. Nonetheless, the ICE Brent benchmark rose to beyond $70.0 / bbl during the first part of March, its highest level since May 2019, and US benchmark NYMEX WTI rose above $66.0 / bbl as well, its highest mark since April 2019.
However, in the second half of the month, the oil market witnessed a sharp sell-off. It was exacerbated by liquidation of the positions on signs of deteriorating near-term oil demand amid resurgent COVID-19 infections across Europe, India, Latin America and other countries, along with the spread of new variants. Meantime, the global vaccination programmes slowed due to distribution issues and the temporary suspension of the Oxford/AstraZeneca vaccine in several European countries over concerns about possible side effects, which weighed on market sentiment and raised the risk to near-term demand outlooks. Oil price volatility also heightened after the Ever Given blocked the Suez Canal for several days, raising worries about potential global supply disruptions of crude and refined products. All in all, the major crude oil benchmarks closed the month of March in the red zone with the ICE Brent falling by $1.68 / bbl, or -2.6% MoM, and the NYMEX WTI sank by $2.34 / bbl, or -3.8% MoM.
It was not a surprise that market participants took a break after such a splash of volatility in crude oil futures, so the market swung till the middle of April in a rather tight range of $60.0-65.0 / bbl as of the ICE Brent grade. However, crude oil futures shot significantly higher on April, 14 as the US crude inventories dropped to the lowest since February following the biggest decline in two months, according to the Energy Information Administration. Moreover, the stronger outlook for U.S. demand, along with improvements in China, drove the International Energy Agency (IEA) and the OPEC to lift their forecast for oil consumption this year some days earlier. So, both the ICE Brent and the NYMEX WTI benchmarks ended the period under report tangibly higher with the ICE Brent added $3.24 / bbl, or +5.0%, and the NYMEX WTI rose by $2.65 / bbl, or +4.3%.
In the month of March 2021, total production of crude oil in the OPEC as a whole went up by 300 thsd bbl / d comparing to the prior month, or +1.2% MoM. The same time, crude oil production experienced a decline by 3.3 mln bbl / d relative to one year ago level, or -11.5% YoY. The output of crude oil in the OPEC deflated in yearly terms in the month under review for the 11th consequent month due to a collapse of the production in May 2020 as a result of the OPEC+ historical deal to curb the output to overcome the demand destruction in the circumstances of COVID-19 pandemic. So, the cartel continued to produce the amount of crude oil unseen for more than two decades before the pandemic. The most recent OPEC and non-OPEC Ministerial Meeting was held on April 1, 2021. The Meeting approved the adjustment of the production levels for May, June and July 2021, while continuing to adhere to the mechanism agreed upon in the 12th OPEC and non-OPEC Ministerial Meeting (December 2020) to hold monthly OPEC and non-OPEC Ministerial Meetings to assess market conditions and decide on production level adjustments for the following month, with every adjustment being no more than 0.5 mln bbl / d. The Meeting also welcomed the positive performance of participating countries. Overall conformity reached 115 per cent in February 2021, reinforcing the trend of aggregate high conformity by participating countries. Finally, the Ministers noted, with gratitude, the value of the prudent policy approach by Saudi Arabia of maintaining its additional voluntary adjustments of 1 mln bbl / d in April 2021 for the third month in a row.
Total oil production worldwide mostly recovered in March 2021 after a sudden drop during the previous month caused by poor weather conditions in the USA. Relative to the depressed level of February the indicator rose by 1.51 mln bbl / d, or + 1.6% MoM. Dynamics of oil production in different regions outside the OPEC was uneven within the period. The most rapid growth of production was registered in the region of Americas, where extraction of oil exploded by 1.35 mln bbl / d, or +4.5% MoM. Output of oil in Europe also increased moderately in March relative to the volume of the previous month. The rate of growth was equal to 74 thsd bbl / d, or +1.7% MoM. On the other hand, total oil production in the regions of Asia and Africa / Middle East in March 2021 was somewhat lower in compare to February 2021. Performance of oil production in different countries not participating in the OPEC also was dissimilar in the month under review. Nonetheless, the strongest expansion of crude oil production was registered in the USA. The output in this country jumped by 1.42 mln bbl / d, or +8.6% MoM. Norway experienced likewise a formidable rise of oil production in March 2021 relative to the month prior. To be more exact, the production increased by 3.5% MoM, or +74 thsd bbl / d. So, oil production in Norway came up to its record high within last 10 years equal to 2.19 mln bbl / d. Brazil showed also a meaningful rise of output in March on a month-over-month basis, equal to 78 thsd bbl / d, or +2.4% MoM. Such countries as Mexico and Russia exhibited a temperate increase of extraction of oil in the month under review as well. In particular, production of oil in the country of Mexico expanded modestly by 20 thsd bbl / d, or +1.0% MoM, for the 2nd month in a row, while total oil output in Russia went up by 1.3% MoM, or +135 thsd bbl / d as compared to the previous month. On the other hand, Canada and China recorded a formidable contraction of oil production in March 2021 as compared to February 2021. Thus, the most considerable monthly decline of the output was exhibited in Canada, where the production dropped by 1.9% MoM, or -108 thsd bbl / d. In China, output of oil decreased by 79 thsd bbl / d, or -1.58% MoM.
Total production of oil in the USA in March 2021 expanded modestly by 337 thsd bbl / d, or +2.2% MoM, after a sharp drop in the previous month linked with bad weather conditions. The overall growth of the production was rather muted due to a tangible drop in output of natural gas liquids (NGLs) which contracted by almost 5.0% MoM. In contrast to one year ago level, total oil production in the USA was almost 2.0 mln bbl / d lower in March 2021, or -10.9% YoY. The same time, shale oil production in the USA exploded by 10.3% MoM, or +729 thsd bbl / d in compare to the previous month after a sharp drop of the output in February. It was one of the sharpest monthly growth rates of the production over the whole history of observations with the growth rate exceeding 2.8 StD of monthly growth rates. Nevertheless, from a longer-term point of view shale oil production in the USA in March was much lower than it was one year ago. To be more precise, in March 2020 the production was close to 9.3 mln bbl / d, so a yearly decline of the output in March was equal to 1.5 mln bbl / d, or -16.2% YoY.
In the fourth quarter of 2020, total demand for oil in the world continued to recover after pandemic-related shock and improved moderately by another 2.0 mln bbl / d on a quarterly basis, or +2.2% QoQ. Nevertheless, total global demand for oil in the quarter under review was lower than it was one year ago, in the 4th quarter of 2019, as demand destruction during 2Q20 was unprecedented in modern history. To be more precise, aggregate consumption of oil around the world in the 4th quarter of 2020 was nearly 6.0 mln bbl / d lower than in the 4th quarter of 2019, or -5.9% YoY. The majority of regions around the globe showed improvement of demand for oil in the 4th quarter of 2020 relative to the 3rd quarter of 2020. The most substantial increase of oil consumption in absolute terms was recorded in Asia, where an aggregate figure of the demand continued to went upward for 3 consequent quarters. Among others, the demand for oil in the region built up in 4Q20 by 4.8% QoQ, or 1.31 mln bbl / d, and expanded to its peak mark ever equal to 28.42 mln / d. According to the most recent IEA monthly report, total oil demand worldwide in 2021 is forecasted to reach 96.7 mln bbl / d, an increase of 5.7 mln bbl / d from 2020. Despite weaker-than-expected data for 1Q21, annual growth has been revised up by 230 thsd bbl / d on average to take account of better economic forecasts and robust prompt indicators. The biggest upgrade was for the United States, given its swift vaccine rollout and hefty stimulus packages on the way. China was also revised slightly higher. Nevertheless, the IEA stated that the recovery on oil market remains fragile with the number of COVID-19 cases surging in some major consuming countries.
Total commercial stocks of crude oil and oil products in OECD states continued to decrease in December 2020 for the 5th month in a row and declined by another 44.6 mln bbl in comparison with November 2020 level, or -1.4% MoM. On a year-over-year basis, total oil stocks in OECD countries apparently proceeded to demonstrate strong positive dynamics due to a massive build of the stockpiles during spring months of 2020. To be more precise, total oil stocks in the OECD in December 2020 were 174.0 mln bbl, or +6.0% YoY, higher than they were one year ago in December 2019. According the preliminary IEA data, total OECD oil stocks fell for the 6th consecutive month in January 2021. A monthly decline of 14.2 mln bbl left inventories at 3 023 mln bbl, 63.2 mln bbl above their 2016-2020 average. Crude oil stocks led the fall with a counter-seasonal 23.7 mln bbl draw. Preliminary February data for the US, Europe and Japan show that total industry stocks continued to fell further by 52.6 mln bbl in total, led by lower gasoline and middle distillate stocks in the US.
Total commercial inventories of oil and oil products in the USA in March 2021 experienced a growth of 0.6% MoM, or +5.4 mln bbl relative to the level of February 2021. By the same token, stocks expanded more significantly on an annual basis, a yearly change of the figure was equal to 38.2 mln bbl, or +4.6% YoY. Crude oil inventories in the Cushing storage in Oklahoma (the basis for NYMEX WTI crude oil futures) in March 2021 felt over the 5th consequent month and decreased by another 1.3 mln bbl relative to February 2021 level, or -2.6% MoM. A volume of the stocks in Cushing in the month under review sank to the lowest level since June 2020 and went 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 March 2021 expanded by 4.2 mln bbl, or +7.0% YoY.
Total floating stocks of crude oil around the world in March 2021 expanded moderately by 11.5 mln bbl in compare to the volume of the prior month, or +12.8% MoM, after the figure dipped to the lowest level over 11 months in February 2021. In absolute terms, a volume of floating oil inventories worldwide was equal to 101.7 mln bbl as of the end of March. However, in pre-COVID times the figure usually fluctuated in a range of 50-70 mln bbl that is considerably lower than the current level. That’s why a total volume of crude oil that held of floating storages in the month of March 2021 again was much higher than it was one year ago, in March 2020. To provide greater details, a volume of the floating stocks expanded in March 2021 by 35.8 mln bbl in contrast to March 2020, or +54.2% YoY. On a year-over-year basis, crude oil floating stocks continued to grow for 12 months in a row.