The crude oil market in the first half of December 2023 was again characterized by bearish sentiment with Brent and WTI front-month futures falling to their 6-month lows of $72.29 and $67.71, respectively, due to a combination of increasing supply from non-OPEC+ countries, weakening global demand growth, and uncertain macroeconomic conditions.
EXECUTIVE SUMMARY
The crude oil market in the first half of December 2023 was again characterized by bearish sentiment with Brent and WTI front-month futures falling to their 6-month lows of $72.29 and $67.71, respectively, due to a combination of increasing supply from non-OPEC+ countries, weakening global demand growth, and uncertain macroeconomic conditions. Initially, the decline in Brent and WTI prices in December continued the momentum persisted during the previous month and was additionally driven by the U.S. Energy Information Administration's report, which indicated a further build-up in crude oil inventories, suggesting a potential short-term oversupply. This trend was further influenced by the anticipation and subsequent confirmation of OPEC+'s decision to reduce oil production by an additional 700 thousand barrels per day (kbd) starting in 2024. As this move that was widely expected by the market, the impact on prices was limited, and the market quickly faced further downward pressure. As the month progressed, prices continued to slide due to ongoing inventory builds, overshadowing the impact of geopolitical tensions. However, in the middle of the month, a reversal occurred, with both Brent and WTI prices experiencing a modest recovery due to a reassessment of the geopolitical landscape and its perceived impact on global oil supply as the Iranian-backed Houthi started to attack commercial vessels in the Red Sea. The rebound in prices continued later in the month, driven by further disruptions in Red Sea shipping routes, which raised concerns over supply chain stability. Additionally, positive macroeconomic data from the U.S., indicating potential growth in oil demand, contributed to this upward trend. As of December 27, the ICE Brent front-month future rebounded to around of $80.8 per barrel, falling by less than $0.1, or -0.1%, relative to the end of November, while the NYMEX WTI near-month contract recovered to $75.4, providing a bit more material loss of $0.5 in compare to the close of the prior month, or -0.7%. As for the 2023 year as a whole, both benchmarks are heading to close it lower on a year-over-year basis, for the first time since 2020 year, losing around $5.1, or -5.9% YoY, in Brent futures and $4.84, or -6.0% YoY, in WTI contracts (as of December 27). This drop occurred to be more pronounced when comparing year-average prices as on this basis Brent crude oil was approximately $16.5 cheaper in 2023 comparing to 2022, or -16.7%, while WTI benchmark plummeted by $16.6, or -17.6%.
The most recent OPEC+ meeting held on November 30, 2023 (though it was originally scheduled for November 26) resulted in additional voluntary cuts totaling 2.2 mbd. These voluntary cuts were calculated from the 2024 required production level as per the 35th OPEC Ministerial Meeting, and are in addition to the voluntary cuts previously announced in April 2023 and later extended until the end of 2024. These additional voluntary cuts were announced by the following OPEC+ countries: Saudi Arabia (1.0 mbd); Iraq (223 kbd); United Arab Emirates (163 kbd); Kuwait (135 kbd); Kazakhstan (82 kbd); Algeria (51 kbd); and Oman (42 kbd) starting the 1st of January 2024 until the end of March 2024. Afterwards, in order to support market stability, these voluntary cuts will be returned gradually subject to market conditions. The Russian Federation also announced a voluntary cut of 500 kbd for the same period. This cut will be made from the average export levels of May and June 2023 and will consist of 300 kbd of crude oil and 200 kbd of refined products. OPEC+ also invited Brazil to become a member of the group, with Brazil’s energy minister indicating hopes to join in January 2024. It will further strengthen OPEC+ since Brazil is the largest oil producer in Latin America at around 3.30 mbd with its oil production increasing from 2.94 mbd in 2020 and with further potential to increase production. The next 37th OPEC and non-OPEC Ministerial Meeting is scheduled to be held on June 1, 2024.
Global oil production reached a new all-time high in November 2023, with the total output standing at 102.53 million barrels per day (mbd), according to the most recent monthly report of the U.S. Energy Information Administration (EIA). The month-over-month increase in production was relatively modest yet positive, at 0.22 mbd, or 0.2% MoM. This incremental growth, although slight, continued a 3-month upward trend in production rates, though the growth geared down to its minimal pace over this period. Year-over-year analysis presents a more pronounced increase. The global oil production rose by 1.15 mbd compared to the same month in the previous year, translating to a 1.1% YoY growth, being the fast expansion in the last 5 months. Also, this increase was part of a broader trend, as evidenced by the 3-month upward trajectory in year-over-year production figures. Additionally, the current production level significantly outpaces the 5-year average by 3.1 mbd, a 3.1% increase, highlighting a period of robust growth in global oil production.
The International Energy Agency (IEA), in its turn, focused on record-breaking supply from the United States, Brazil and Guyana, and sharply higher Iranian oil production, which along with easing demand, prompted some OPEC+ members to announce more extensive 1Q24 cuts to fend off a potential inventory build. Improved drilling efficiencies and well productivity in the shale patch saw US oil supply exceed 20 mbd in September, defying industry warnings of an imminent slowdown in growth due to cost inflation and oil field service capacity constraints. As a result, upward revisions to US 2H23 supply are set to total close to 600 kbd since IEA’s June monthly report. The United States is now on track to deliver a supply increase of 1.4 mbd in 2023, accounting for two-thirds of the 2.2 mbd non-OPEC+ expansion. At the same time, OPEC+ will post a 400 kbd decline, cutting its market share to 51% in 2023 – the lowest since the bloc’s creation in 2016. Hefty supply cuts, largely shouldered by Saudi Arabia, have been tempered by Iranian production at five-year highs. While non-OPEC+ supply growth is set to lose momentum in 2024, forecast gains of 1.2 mbd may yet exceed the increase in global oil demand.
OPEC total crude oil production witnessed a notable decrease in November 2023, according to cartel’s own data, marking a significant shift from its previous trend. The production dropped by 63 kbd, a 0.2% MoM decline from the previous month. This change not only signified the fastest month-over-month rate of decline in a 4-month period but also marked the end of a 3-month upward trend, highlighting a pivotal moment in production dynamics. Year-over-year comparisons paint a similar picture of decline. The production in November 2023 was lower by 1.0 mbd compared to the same month in the previous year, translating to a 3.5% YoY reduction. This decrease was part of a continuing downward trend, extending over 8 months, although it represented the slowest year-over-year rate of decline observed in the past 5 months. When juxtaposed against the 5-year average for November, the production levels were noticeably lower in November 2023 as well. The production stood 729 kbd below the 5-year average, a 2.6% decrease, underscoring a significant deviation from historical patterns. For November 2023, the month-over-month changes in oil production among different OPEC countries showed varying trends. While Iraq experienced the largest decrease in oil production with Nigeria and Angola followed closely, Libya and Venezuela delivered significant increase increases in crude oil output comparing to a month ago.
Meantime, the IEA and the EIA again provided a bit different evaluations of OPEC’s crude oil supply in November 2023. Thus, the IEA assessed OPEC's production to be marginally higher at 28.10 mbd, indicating an increase of 263 kbd or approximately 0.9% more than OPEC's own figures. On the other hand, the EIA's estimate was slightly lower at 27.74 mbd, a decrease of 97 kbd or roughly 0.4% less than OPEC's reported production. These variances, while seemingly modest, are significant when viewed in the context of the global oil market. The analysis of OPEC’s November 2023 crude oil production data provided by the three vendors elucidates the variances in estimates across key OPEC nations as well. While some countries like Saudi Arabia and Kuwait showed minor deviations, others like the U.A.E. and Nigeria exhibited significant discrepancies.
Total non-OPEC oil production witnessed a modest month-over-month increase in November 2023, rising by approximately 180 kbd, which translates to a 0.3% MoM uptick from the previous month. This increment continued an upward trend that had been persisting for two previous months. In terms of year-over-year dynamics, there was a more significant rise, with production climbing by around 2.27 mbd, representing a 3.4% YoY increase compared to the same month in the previous year. This growth marked the continuation of an upward trend spanning an impressive 31 months. However, the month's year-over-year growth rate was the slowest observed over the preceding 4 months. Another highlight of the month was its performance relative to historical values. The production level in November 2023 stood as a new all-time high of 69.41 mbd. When compared to the five-year average for the same month, the production was higher by approximately 3.73 mbd, indicating a substantial rise of 5.7%.
Total non-OPEC oil production witnessed a modest month-over-month increase in November 2023, rising by approximately 180 kbd, which translates to a 0.3% MoM uptick from the previous month. This increment continued an upward trend that had been persisting for two previous months. In terms of year-over-year dynamics, there was a more significant rise, with production climbing by around 2.27 mbd, representing a 3.4% increase compared to the same month in the previous year. This growth marked the continuation of an upward trend spanning an impressive 31 months. However, the month's year-over-year growth rate was the slowest observed over the preceding 4 months. Another highlight of the month was its performance relative to historical values. The production level in November 2023 stood as a new all-time high of 69.41 mbd. When compared to the five-year average for the same month, the production was higher by approximately 3.73 mbd, indicating a substantial rise of 5.7%. The performance of oil production in major non-OPEC countries in November 2023 displayed a mixed but generally positive trends. In monthly terms, while some countries like the U.S. and Russia showed solid increases, others like Brazil and Kazakhstan faced decreases.
U.S. total oil production in November 2023 reflected a period of substantial growth. The month-over-month dynamics showed an increase of 273 kbd, marking a growth of 1.2% MoM. This growth rate was the highest observed in the past 4 months, indicating a strong upward momentum in the short term. Furthermore, this period marked a consistent upward trend, extending over 9 months. In result, the total oil production achieved its new highest level on records of 22.55 mbd, indicating a historical peak in the country's oil production. The year-over-year analysis revealed an even more significant increase in output. There was an absolute rise of approximately 1.57 mbd relative to a year ago, translating to a 7.5% YoY increase. This was the highest YoY growth rate in the past 3 months, underscoring a robust and sustained upward trajectory in oil production. Impressively, this upward trend has been ongoing for 32 months. When compared to the five-year average for November, the total oil production in the U.S. was markedly higher. The production stood 2.69 mbd above the average, a substantial 13.6% increase, also highlighting the considerable growth in US oil production over the years. All constituents of the U.S. total oil production provided positive monthly dynamics in November 2023 with natural gas liquids (NGLs) delivering the most part of the overall growth.
U.S. shale oil production exhibited an absolute monthly increase of 44 kbd in November 2023, translating to a growth of 0.4% on a month-over-month basis and fully offsetting the drop occurred in the previous month. Year-over-year, the production rose more significantly, adding 0.51 mbd, a solid 5.4% YoY increase. The total output of shale oil in the country reached in November the level of 9.9 mbd, marking the new highest value observed over the history. Comparing to a 5-year average for the same month, shale oil production showed a significant rise, with an absolute difference of 1.14 mbd and a relative difference of 13.1%. Additionally, the data indicated an ongoing upward year-over-year trend for 31 months, reflecting sustained growth in the output. The most US shale oil fields expanded their production of shale oil in November 2023 relative to the previous month, except for Anadarko and Utica, pursuant to Rystad Energy’s data, though the major increment was delivered by the deposit of Permian.
World oil demand is on track to rise 2.3 mbd to 101.7 mbd in 2023, according to the IEA’s most recent monthly report, but this masks the impact of a further weakening of the macroeconomic climate. Evidence of a slowdown in oil demand is mounting, with the pace of expansion set to ease from 2.8 mbd year-over-year in 3Q23 to 1.9 mbd in 4Q23. A deterioration in the macroeconomic outlook led to a downward revision in IEA’s global oil consumption growth forecast of nearly 400 kbd in the final three months of the year. Europe, Russia and the Middle East account for most of the adjustment. The impact of higher interest rates is feeding through to the real economy while petrochemical activity shifts increasingly to China, undermining growth elsewhere. Europe is particularly soft amid the continent’s broad manufacturing and industrial slump. In addition, tighter efficiency standards and an expanding electric vehicle fleet continue to curb oil use. As a result, world oil demand growth in 2023 has been adjusted lower by 90 kbd from the previous IEA’s monthly report to 2.3 mbd. China accounts for 78% of this year’s increase. Oil consumption growth is expected to ease significantly in 2024, to 1.1 mbd, with demand baselines normalizing as pandemic-related distortions fade.
The most recent EIA data suggests that global consumption of crude oil and petroleum products exhibited a modest uptick in November 2023, registering an increase of 0.7 mbd which translates into a growth rate of 0.7% MoM, the highest monthly rate of growth over a span of 5 months. In annual terms, the absolute change in the global oil consumption stood in November 2023 at 1.17 mbd, corresponding to a 1.2% YoY increase, confirming an 11-month continuous upward YoY trend. The comparison against a 5-year average for the same month reveals that the November 2023 oil consumption surpasses the historical norm by 2.4 mbd, a substantial 2.4% relative increase. Monthly dynamics of oil consumption in OECD and non-OECD groups were opposite in in the reported month with the non-OECD group emerged as the only source of oil use growth while the OECD demand softened somewhat comparing to a month ago.
Global observed oil inventories declined by 19.6 million barrels (mb) in October 2023, according to the most recent monthly report of the IEA. While crude oil inventories were largely unchanged, oil product stocks fell for the first time in four months, reversing the trend in 3Q23 when oil product stocks rose 1.3 mb per day, while crude drew 1.6 mb per day on average. OECD and non-OECD on-land stocks fell by 18.9 mb and 24.2 mb, respectively, while oil on water built by 23.5 mb.
Meantime, total OECD oil inventories experienced a noticeable downturn in September 2023 on a monthly basis, in accordance with the most recent monthly data provided by the IEA. The inventory levels decreased by 3.7 million tons from the previous month, translating to a 0.8% month-over-month contraction. This downturn established a sustained downward trajectory, as evidenced by the fact that it marked the fastest MoM rate of decline over a 6-month span and continues a downward month-over-month trend for a duration of 2 months. Additionally, when compared to the same month in the previous year, the inventories showed a reduction of 2.8 million tons, a decline of 0.6% year-over-year. This decrease extended an ongoing year-over-year downward trend for 8 months. A particularly striking aspect of the September 2023 data was that the inventories have hit their lowest point in over 6.5 years, underscoring the magnitude of the decrease. Moreover, when juxtaposed with the five-year average for September, the inventories were substantially lower, showing a shortfall of 53.82 million tons, or 10.3% less than the average.
U.S. total oil inventories witnessed a moderate escalation of 8.68 mb in November 2023 as against with the previous month, a rate of 0.5% MoM. Annually, the inventories observed a nominal augmentation of 1.08 mb, reflecting a subtle uptick of 0.1% YoY. However, it was enough to reverse a downward YoY trend which was observed during a long period of preceding 32 months. So, it was the first annual accumulation of the stocks in almost 3 years. Despite all these increments, the U.S. total oil inventories still has exhibited a significant contraction against the 5-year average, underscoring a deficit of 244.8 mb, denoting a -13.2% deviation. The monthly expansion of the U.S. total oil inventories in November 2023 was primarily driven by accumulation of commercial oil stocks, while the SPR saw only a marginal increase within the month.
Oil inventories in Cushing, Oklahoma, exhibited a significant month-over-month escalation in November 2023, with a volume swell of 6.2 mb, marking a robust growth rate of 29.0% MoM. This upsurge represented the steepest monthly increase in the preceding 10 months. The month also signaled a shift in trends, interrupting a previously ongoing four-month downward trajectory. Moreover, the storage levels peaked to the highest in three months. Year-over-year comparisons also painted a picture of growth, with the inventories expanding by 3.4 mb, a 14.0% YoY rise compared to the same month in the previous year. This increase was the most pronounced YoY growth observed over the last 3 months. There was also a notable drop of the stocks from the 5-year average for the same month, with November 2023 levels falling short by 11.2 mb, a substantial 28.7% decrease.
Global offshore oil inventories witnessed a notable uptick in November 2023, registering an increase of 7.4 mb, a figure that translates to an impressive 9.4% rise from the previous month. This growth not only signifies a substantial month-over-month expansion but also marks the fastest growth over the last 8 months, underscoring a period of robust accumulation in oil reserves. On the year-over-year front, the scenario pivots quite drastically. The world inventories experienced a contraction of 6.6 mb in compare to a year ago, denoting a 7.2% decrease compared to the same month in the preceding year. In terms of the comparison with a 5-year average for the same month, the November 2023 inventory levels stand 5.6 mb higher than the average, a relative increase of 6.9%. The Middle East Gulf and Asia were key positive contributors in November 2023, while West Africa significantly offset this inventories build-up and reduced the total month-over-month growth in global offshore oil inventories.
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