Crude oil prices continued to rise in July 2021 for the third consequent month with ICE Brent and NYMEX WTI first-month contracts ended the month respectively 1.2% and 1.5% higher over a relatively volatile month.
EXECUTIVE SUMMARY
Crude oil prices continued to rise in July 2021 for the third consequent month with ICE Brent and NYMEX WTI first-month contracts ended the month respectively 1.2% and 1.5% higher over a relatively volatile month. Crude oil prices started the month generally higher, extending the previous months’ gains, as the market continued to be supported by strong oil market fundamentals, primarily driven by robust oil demand growth outlooks and expectations of slow global oil supply growth, which point to a significant oil supply/demand deficit in 2H21. A strong driving season in the US, improved road transportation fuels in Europe, firmed demand in China, and a steady oil demand recovery in India after the easing of COVID-19-related mobility restrictions bolstered global oil demand outlooks. Moreover, improving refinery intakes in major refining regions, and encouraging global economic data, particularly in the US, China, and Europe, added optimism to market sentiment. Uncertainty about the global oil supply also pushed oil prices higher.
However, crude oil futures markets entered a turbulent zone in the second decade of July 2021 with heightening volatility, triggered by rising concerns about the rapid spread of the new COVID-19 Delta variant in several major economies and a broad selloff in US equity markets. Additionally, speculation about a supply overhang after OPEC and non-OPEC producers in the DoC decided to voluntarily adjust their production gradually higher as from August played a role. These factors combined contributed to the ICE Brent and NYMEX WTI prompt month falling by 6.8% and 7.5%, respectively, in one session on July 19, 2021. Surging Delta infections in major economies, including the US, China, Japan, the UK, and parts of Europe, along with other regions, and the reinstatement of lockdowns and mobility restriction measures in several South Asian countries, weighed on market sentiment.
Crude oil prices recovered slightly in the third decade of July 2021 and rose further towards the end of the month after investors turned more optimistic on the global oil demand recovery amid expectations that higher vaccination rates in major economies would mitigate the negative impact of a resurgence of COVID-19 infections. Furthermore, the global oil supply/demand balance continued to show a deficit in 2H21, despite the announced OPEC and non-OPEC upward output adjustments. Oil prices were also buoyed by declining OECD oil stocks, particularly in the US, in a sign of a continuing rebalancing process. The ICE Brent front-month futures increased by $0.88 relative to June, or +1.2% MoM, in July 2021 to average $74.29 / bbl, and NYMEX WTI rose by $1.08 on a monthly basis, or +1.5% MoM, to average $72.43 / bbl. ICE Brent was $24.30 higher YTD, or 57.5%, at $66.57 / bbl, while NYMEX WTI was $26.29 higher, or 70.3%, at $63.70 / bbl, compared with the same period a year earlier.
However, the oil prices again reversed to the downside in early August 2021, as weak economic data from China and the United States, the world's top oil consumers, and higher crude output from OPEC producers stoked fears of weakness in oil demand and oversupply. Surging cases of COVID-19 in Japan, the world's third-largest economy, and some other Asian states provided an additional pressure on crude oil prices later in the month as well. The negative performance extended substantially during the third week of August after the U.S. dollar strengthened on concern that the global economic recovery might slow and the Federal Reserve’s signals that it will scale back stimulus measures that led to an overall flight to quality on global financial markets. So, oil prices fell to their lowest level in about three months. Both ICE Brent and NYMEX WTI benchmarks ended the period under report in the red zone, although the drop was less severe due to the previous correction on the market in the middle of July 2021. The ICE Brent front-month futures contract lost $2.64 / bbl, or -3.8%, as compared to the level of July 20, 2021, and the NYMEX WTI nearest contract slid down by $3.4 / bbl, or -5.1% over the same period of time.
The total crude oil output in the OPEC experienced an expansion within the third consequent month in July 2021 and went up by 420 thsd bbl / d in compare to the volume of the prior month, or +1.6% MoM. The extraction of crude oil by the OPEC states as a whole rose within the month to the new maximal level since April 2020 of 26.82 mln bbl / d. The decision of the OPEC+ group to gradually return 2 mln bbl / d of the production adjustments to the market within several months still was the main reason of this continuous crude oil output growth, the same as it was during three previous months. On an annual basis, the total production of crude oil by the OPEC as a whole also showed positive dynamics and grew considerably by 2.95 mln bbl / d relative to the volume of July 2020, or +12.4% YoY. The extraction of crude oil by the cartel continued to expand in yearly terms within consequent 1 quarter. The most material expansion of output of crude oil in July 2021 was exhibited in Saudi Arabia, where crude oil production went up by 480 thsd bbl / d relative to the level of June 2020, or +5.4% MoM. The kingdom proceeded to abandon its additional voluntary supply adjustment of 1.0 mln bbl / d that was intact during 1Q21 as well as to reduced its production cuts according to the new OPEC+ agreement. So, the crude oil output in Saudi Arabia continued to expand for the third consequent month and rose to its new maximum level since April 2020 of 9.43 mln bbl / d. The combined production growth over last 3 months in the kingdom widened to 1.26 mln bbl / d.
There was no scheduled or extra-ordinary OPEC and non-OPEC Ministerial Meeting during the period under after the 19th OPEC+ meeting was held on July 18, 2021. The 19th meeting concludes to adjust upward the OPEC+ overall production by 0.4 mln bbl / d on a monthly basis starting August 2021 until phasing out the 5.8 mln bbl / d production adjustment, and in December 2021 assess market developments and Participating Countries’ performance. Also, the meeting agreed to continue to adhere to the mechanism to hold monthly OPEC and non-OPEC Ministerial Meetings for the entire duration of the Declaration of Cooperation, to assess market conditions and decide on production level adjustments for the following month, endeavoring to end production adjustments by the end of September 2022, subject to market conditions. The next 20th meeting was scheduled for September 1, 2021.
The total production of oil worldwide continued to improve in July 2021 for the 5th month in a row and expanded by another 1.33 mln bbl / d in contrast to the volume of the previous month, or +1.4% MoM. The global output again renewed its maximal level since April 2020, when Saudi Arabia made an attempt to flood the market with oil to punish Russia after the collapse of their negotiations to extend the OPEC+ agreement. In yearly terms, the cumulative oil production worldwide again showed very impressive positive dynamics during the month under review, although the pace of growth began to decelerate comparing to the month prior. The global production of oil rose in July 2021 by more than 7.0 mln bbl / d relative to the volume of July 2020, or solid +7.8% YoY. Relative to the pandemic through of May-June 2020, the total oil production around the globe in July 2021 was higher by nearly 9.0 mln bbl / d, or +10.1%. The most formidable expansion of its oil output in the month under review was showed in the United Kingdom. The oil production in this state skyrocketed by 40.7% MoM, or +300 thsd bbl / d. It was the most rapid monthly growth of the output in the UK for preceding 5 years and the rate of growth was equal to 3.63 SD of monthly growth rates over last 10 years. However, so dramatic monthly growth of the output in the country was attributed to the low base of June 2021, when the production dropped to its lowest level since August 2014. Norway demonstrated a strong rise of its production of oil in July 2021 in monthly terms as well, for the second month in a row. The output in Norway demonstrated an expansion of 252 thsd bbl / d, or +13.3% MoM, the fastest monthly production growth over last 12 months. Moreover, the oil production in Norway in July 2021 built up to its peak value throughout last 3 years equal to 2.14 mln bbl / d. Another Non-OPEC state that delivered a strong improvement of its oil production in July 2021 was Brazil. The extraction of oil in the country increased in the month under review by 275 thsd bbl / d relative to the month prior, or +6.8% MoM, the 5th consequent month of growth in a row. In result, the production of oil in Brazil in July 2021 ran to its maximum level of 4.34 mln bbl / d since March 2020. The most formidable monthly decline of the production was observed in China and Canada. Thus, the oil output in China went down in July 2021 strongly by 151 thsd bbl / d, or -2.9% MoM, the worst monthly decline of the production in the course of recent 5 years. In Canada, the oil production dipped by 169 thsd bbl / d within the same period of time, or the same -2.9% MoM.
The total oil output in the USA (counted as the sum of the output of crude oil and NGLs) continued to expand in July 2021 at a rapid pace for the second month in a row and increased by another 527 thsd bbl / d in compare to the previous month, or +3.3% MoM. The total production reached in July its new highest level since March 2020. On an annual basis, the total output of oil in the country went up by 759 thsd bbl / d relative to one year ago level, or +4.8% YoY, or 759 thsd bbl / d. From a yearly movement point of view, the output ramped up over 3 months in a row. Also, in July it was the most rapid annual growth of the indicator over last 12 months.
The total shale oil output in the USA exhibited an increase of 95 thsd bbl / d in July 2021 as against June 2021, or +1.2% MoM. On a month-over-month basis, the production of shale oil in the USA continued to grow during consequent 5 months. So, the shale oil output rose in July to its peak print of 8.34 mln bbl / d in the course of preceding 1 year. In yearly terms, the shale oil production in the USA went up by 453 thsd bbl / d, or +5.7% YoY. The output expanded annually within consequent 1 quarter. The strongest expansion of the output in the month under review was recorded on the Permian deposit, the largest one among the shale oil sites in the USA. The production of shale oil on Permian increased by 90 thsd bbl / d relative to the month prior, or +1.9% MoM. The overall growth of shale oil production in the USA in July 2021 was attributed mainly to the expansion of the output on this exactly field. The output on the Permian deposit continued to build up within consequent 5 months. So, in July 2021 the output came up its record high of 4.8 mln bbl / d in the course of preceding 1 year.
According to the most recent monthly report of International Energy Agency (IEA), global oil demand surged by 3.8 mln bbl / d on a month-over-month basis in June 2021, led by increased mobility in North America and Europe. However, demand growth abruptly reversed course in July 2021. So, the IEA revised down its estimates of global oil demand for the remainder of 2021, in part due to the inclusion of more complete historical annual statistics, in part due to the worsening progression of the pandemic. Global oil demand is now seen rising 5.3 mln bbl / d on average, to 96.2 mln bbl / d in 2021, and by further 3.2 mln bbl / d in 2022. Growth for the second half of 2021 has been downgraded more sharply, as new COVID-19 restrictions imposed in several major oil consuming countries, particularly in Asia, look set to reduce mobility and oil use.
Total commercial stocks of crude oil and petroleum products in OECD states continued to expand in May 2021 on a monthly basis for the second consequent month after 10 months of decline in a row. However, the growth was timid and equal to 18.1 mln bbl, or +0.6% MoM. So, the volume of the stocks remained close to its pre-pandemic levels. As for year-over-year dynamics of the stocks, total inventories of crude oil and refined oil products in the OECD in May 2021 were considerably lower than they were one year ago in May 2020. The annual drop of the stockpiles was equal to 266.0 mln bbl, or impressive -8.3% YoY, the worst performance of the indicator on records. However, according the preliminary IEA assessments, total crude oil and petroleum products stocks in the OECD fell by a large 50.3 mb in June 2021 and stood at 2 882 mln bbl, 131.2 mln bbl lower than the 2016-2020 average and 66 mln bbl below the pre-pandemic 2015-19 average. The Chinese implied crude balance fell for a third consecutive month, by 35.5 mln bbl, or 1.2 mln bbl / d, in June. However, first July 2021 data for the US, Europe and Japan show that the cumulative stocks reversed and expanded by a combined 4.2 mln bbl.
Total stockpiles of crude oil and petroleum products in the USA decreased modestly in July 2021 by 24.2 mln bbl relative to June 2021, or -2.9% MoM. The total stocks went down in monthly terms during consequent 4 months and ran in July to its minimum score of 806.8 mln bbl over preceding 12 months. As for a yearly change, the total inventories in the USA demonstrated a decline of 139.5 mln bbl, or -14.7% YoY. It was the most rapid decline of the total inventories in the country in yearly terms on records and the 4th month in a row of negative dynamics of the figure. Total inventories of crude oil and oil products reached its all-time high in May-June 2020 when the volume of the stocks was equal to 964 mln bbl.
Crude oil inventories in the Cushing storage in Oklahoma (the basis for NYMEX WTI crude oil futures) continued to tumble in July 2021 for the 9th consequent month and dropped within the month by another 5.4 mln bbl as compared to the level of June 2021, or -13.3% MoM. The volume of the stocks of crude oil in Cushing in July 2021 sank to its lowest level over previous 2 years equal to 34.9 mln bbl and therefore remained well below an average level for this month of a year over last 5 years. On an annual basis, crude oil inventories in Cushing in July 2021 showed even more impressive negative performance and crumbled by the same 17.1 mln bbl relative to the volume of July 2020, or shocking -32.8% YoY, the worst yearly performance of the indicator throughout previous 2 years. Also, July 2021 was the 4th month in a row of Cushing crude oil stocks depletion in yearly terms.
The volume of crude oil that held on floating storages around the world expanded meaningfully in July 2021 on a monthly basis after it dropped in June 2021 to the lowest level since March 2020 of 83.6 mln bbl. The stocks rose by 8.7 mln bbl relative to the previous month, or +11.4% MoM, and returned close to an average level for this month of a year over last 5 years. Meanwhile, the global floating inventories tumbled in July 2021 as compared to one year ago level. The figure dropped by 95.2 mln bbl over last 12 months, or -52.7% YoY. July 2021 was the 4th consequent month of global floating inventories of oil decrease in yearly terms.