Crude oil prices resumed the upward trend in May 2021 after their stall in April, and recorded six months of gains in the last seven months, increasing by 65% on a monthly basis between October 2020 and May 2021.
EXECUTIVE SUMMARY
Crude oil prices resumed the upward trend in May 2021 after their stall in April, and recorded six months of gains in the last seven months, increasing by 65% on a monthly basis between October 2020 and May 2021. ICE Brent's first month futures contract rose 4.6% in May relative to April on monthly average, to reach its highest level since May 2019, while NYMEX WTI rose by 5.6% MoM to hit its highest since October 2018. During the first half of May, futures prices were supported by increasingly positive market sentiment about economic recovery in the US and Europe, which was bolstered by robust economic data, particularly from the US, in addition to growing signs of strengthening oil demand led by the US and China, as well as western Europe. Oil prices also remained buoyed by a sharp drop in US crude oil stocks and a continuing recovery in refinery runs, while US exports surged by the highest level on record. Nonetheless, the oil prices rally was capped by the deteriorating COVID-19 situation in some Asian countries, including India, and rising infections in other countries, which weighed on market sentiment and raises uncertainty about the oil demand recovery in these regions. A cyberattack on the Colonial Pipeline also added support to oil prices.
In the third week of May 2021, however, oil prices showed higher volatility after investors turned the focus on the deepening COVID-19 crisis in India and the Colonial Pipeline resumed operations, in addition to inflation concerns that added downward pressure on oil prices. The positive sentiment was offset by signs of an economic recovery in the US and Europe, and upbeat forecasts for oil demand in 2H21, with both OPEC and the IEA showing positive oil demand outlooks in their monthly reports last month. Nevertheless, oil prices resumed an upward trend in the fourth week of May and reached their highest levels in more than two years on daily basis, buoyed by growing optimism about the consolidation of the oil demand recovery. More major European countries were relaxing travel restrictions, while mobility data in the US showed continuing recovery in the road and air transportation. The optimism on oil demand outlooks fueled by a series of strong US economic data that continued to highlight the oil demand recovery in the largest oil consumer, in addition to signs of continuing improving oil demand recovery in Europe in the approach of the summer holidays season. Furthermore, the positive COVID-19 vaccination trends in the US and European Union, a decline in COVID-19 infections in India, weaker US dollar, and a rally in US equities added support to the market. So, the major crude oil benchmarks again closed the month of May 2021 deeply in the green zone with the ICE Brent adding nearly $2.5 / bbl, or +3.8%% MoM, and the NYMEX WTI rose even more by $2.7 / bbl, or +4.3% MoM.
During the first three weeks of June 2021, the oil market continued to move higher and reached the maximum level since the spring of 2019. The market was buoyed by strengthening expectations of further demand growth as rising COVID-19 vaccination rates help lift pandemic curbs and strong supply discipline of OPEC+ agreement participating countries that agreed to push on with their plan to slowly release more oil on to the market in July 2021. The rally was also fueled by positive comments of the largest oil traders such as Vitol and Trafigura and some investment banks regarding further prospects of crude oil prices this year. However, during the 3rd week of June the oil prices retreated somewhat from their 2-year highs as risk aversion gripped the market after hawkish signals from the US Federal Reserve. All in all, both ICE Brent and NYMEX WTI benchmarks ended the period under report with a dramatic growth. Thus, the ICE Brent nearest futures contract jumped by $8.4 / bbl, or +12.9% as compared to the level of May 20, 2021, and the NYMEX WTI nearest contract skyrocketed by $9.7 / bbl, or +15.7% over the same period of time.
The total production of crude oil in the OPEC as a whole built up materially in May 2021 by 320 thsd bbl / d, or +1.3% MoM, to the highest level over last 4 months. As for a yearly performance, the output of oil within the cartel expanded by nearly 1.0 mln bbl / d comparing to the level of May 2020, or +4.1% YoY. On an annual basis, the extraction of crude oil in the OPEC rose with the fastest pace of growth over last 3 years thank to effect of the low base. Recall that in May 2020 the OPEC+ historical deal to curb the output to adjust the market to the severe demand destruction due to COVID-19 pandemic became effective. Monthly change of the output of crude oil in different countries participating in the OPEC was dissimilar in May 2021, as compared with the volumes of April 2021. The most significant growth of crude oil output in the month under review was recorded in Saudi Arabia. In May 2021, the production of crude oil in the kingdom showed a tangible increase of 350 thsd bbl / d, or +4.3% MoM, as the country has begun to abandon its additional voluntary supply adjustment of 1.0 mln bbl / d that was intact during the previous months. On the other hand, the most formidable fall of the production of crude oil in May 2021 was recorded in Nigeria, where the extraction declined by 60 thsd bbl / d in contrast to the level of the previous month, or -3.8% MoM.
The 17th OPEC and non-OPEC Ministerial Meeting was held on June 1, 2021. The Meeting noted the ongoing strengthening of market fundamentals, with oil demand showing clear signs of improvement and OECD stocks falling as the economic recovery continued in most parts of the world as vaccination programmes accelerated. In such circumstances, the Meeting reconfirmed the existing commitment to gradually return 2 million barrels a day (mln bbl /d) of the adjustments to the market, with the pace being determined according to market conditions. Notwithstanding, the Meeting reiterated the critical importance of adhering to full conformity, and taking advantage of the extension of the compensation period until the end of September 2021, as requested by some underperforming countries.
The total production of oil worldwide continued to grow in May 2021 for the third month in a row and increased by another 1.06 mln bbl / d in compare to the volume of the previous month, or +1.1% MoM. The global output rose to the highest level since April 2020, when Saudi Arabia tried to flood the market with oil to punish Russia after the collapse of negotiations to extend the OPEC+ agreement. Moreover, the global oil production showed positive dynamics in May 2021 on a yearly basis as well, for the first time over last 12 months, as the oil production around the globe plunged to the lowest level over more than 5 years in May 2020, when the new OPEC+ deal entered into force. So, due to the effect of the low base, the production of oil worldwide rose in May 2021 by solid 6.24 mln bbl / d relative to the volume of May 2020, or +7.0% YoY. In absolute and relative terms, the most formidable growth of the production of oil was recorded in Brazil. The output in the country skyrocketed in the month under review by 471 thsd bbl / d in contrast to the month prior, or dramatic +12.8% MoM, the 3rd month of the production growth in a row. Argentina and Malaysia also exhibited a strong increase of their oil production in May 2021 on a month-over-month basis, at least in relative terms. In particular, the oil production in Argentina jumped by 44 thsd bbl / d, or +6.6% MoM, the highest monthly growth of the production in this state for the whole history of observations, while the oil production in Malaysia in May 2021 expanded by 40 thsd bbl / d relative to April 2021, or +6.6% MoM, the fastest monthly growth rate over recent 12 months. On the other hand, a number of major oil producing states not participating in the OPEC pumped less oil in May 2021 than they did in April 2021. Thus, the most considerable fall of the extraction of crude oil in absolute terms in the month under review was showed in Canada, where the output decreased by 99 thsd bbl / d, or -1.9% MoM, for the 2nd month in a row. In relative terms, the most significant contraction of the oil output in May 2021 was observed in the United Kingdom, where the production dropped by 47 thsd bbl / d in contrast to the month prior, or -4.4% MoM.
The total oil production in the USA as a whole increased in May 2021 somewhat further by 182 thsd bbl / d relative to the level of the month prior, or +1.1% MoM. By the same token, in annual terms the total oil output in the USA in May 2021 exploded as against the volume of May 2020. The growth was equal to more than 2.2 mln bbl / d, or impressive +13.4% YoY. It’s worthwhile to remind that total production of oil in the USA reached its all-time high of nearly 18.0 mln bbl / d just before the start of the pandemic in March 2020. But in contrast to Saudi Arabia and some other OPEC states the USA began to reduce its output as early as in April 2020. The combined total oil production cut in the USA in April-May 2020 was equal to 3.68 mln bbl / d, or -18.2% relative to March 2020 level.
In May 2021, the shale oil production in the USA as a whole increased somewhat by 85 thsd bbl / d, or +1.1% MoM. On an annual basis, the production of shale oil in the USA exhibited a rise of 1.03 mln bbl / d, or +14.7% YoY, the best monthly performance over last 12 months. The larger half of shale oil deposits in the USA experienced a positive performance of the production in May 2021 as against volumes of the April 2021. On an absolute basis, the most material growth of the shale oil production was exhibited on Permian deposit. To speak in numbers, the production on the deposit experienced a rise by 35 thsd bbl / d, or +0.8% MoM. In turn, the most formidable expansion of the shale oil output in relative terms in the month under review was showed on the deposit of Eagle Ford, where the output built up by 34 thsd bbl / d, or +3.2% MoM, the third month of growth in a row.
According to the most recent IEA monthly report, global oil demand is forecast to rebound by 5.4 mln bbl / d in 2021 and a further 3.1 mln bbl / d next year, to average 99.5 mln bbl / d, following a record decline of 8.6 mln bbl / d in 2020. By end-2022, demand should surpass pre-COVID levels. The recovery will be uneven not only amongst regions but across sectors and products. While the end of the pandemic is in sight in advanced economies, slow vaccine distribution could still jeopardize the recovery in non-OECD countries. The aviation sector will be the slowest to recover as some travel restrictions are likely to stay in place until the pandemic is brought firmly under control. Gasoline demand is also expected to lag pre-COVID levels, as continued teleworking practices and a rising share of electric and more efficient vehicles provide an offset to increased mobility. Petrochemicals will be boosted by robust demand for plastics, while global trade supports bunker demand.
Total commercial stocks of crude oil and refined oil products in OECD states were almost flat in April 2021 as compared to March 2021 and barely decreased by 7.0 mln bbl, or -0.2% MoM. Nevertheless, the inventories continued to shrink for the 9th months in a row and dropped in April 2021 to the lowest level since February 2020. In other words, the volume of total commercial stocks of oil in OECD countries in April 2021 finally returned to pre-COVID levels. As for year-over-year dynamics of the indicator, the total inventories in the OECD also were lower than they were one year ago in April 2020. The annual decline was equal to 162.2 mln bbl, or solid -5.2% YoY. So, total OECD industry stocks fell 1.6 mln bbl below the 2015-19 average for the first time in more than a year. According the IEA, May 2021 preliminary data for the US, Europe and Japan show that industry stocks rose by a combined 17.2 mln bbl. Crude oil held in short-term floating storage declined by 6.8 mln bbl to 99.4 mln bbl in May, its lowest since February 2020.
In May 2021, total commercial stockpiles of oil in the USA as a whole continued to decline for the 2nd month in a row and decreased by another 11.0 mln bbl relative to the volume of April 2021, or -1.3% MoM. The stockpiles dropped to its minimal level for recent 12 months equal to 846.05 mln bbl. Meanwhile, total inventories of oil in the USA went down by 118.3 mln bbl in contrast to the level of the same month of the prior year, or -12.3% YoY. From a standpoint of an annual performance, the inventories went down with the fastest rate in the course of last 2 years. So significant yearly decline of total oil inventories in the USA in May 2021 was mainly attributed to the effect of the high base of May 2020, when the figure reached its all-time high equal to 964 mln bbl.
Crude oil inventories in the Cushing storage in Oklahoma (the basis for NYMEX WTI crude oil futures) continued to decline in May 2021 for the 7th consequent month and decreased by another 0.8 mln bbl relative to the level of April 2021, or -1.7% MoM. A volume of the stocks in Cushing in the month under review sank to the lowest level of 45.5 mln bbl over last 12 months and obviously remained 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 May 2021 also showed a negative performance and crumbled by 6.2 mln bbl, or almost -12.0% YoY. On a year-over-year basis, the stocks of crude oil in the Cushing storage contracted within consequent 2 months.
In May 2021, crude oil floating stockpiles around the globe shrank by 14.0 mln bbl in contrast to the volume of the previous month, or -13.4% MoM, after two months of expansion in a row. In absolute terms, the volume of floating oil inventories worldwide shrank to 90.6 mln bbl as of the end of May 2021. Meanwhile, the global floating inventories of crude oil demonstrated a severe decline of 84.6 mln bbl relative to one year ago level, or -48.3% YoY. It was the most rapid annual decline of the inventories in the course of recent 3 years. In the month under consideration, the volume of crude oil that held offshore globally decreased in the course of 2 months in a row.