After five consecutive months of solid gains, crude oil prices eased on a monthly-average basis in a volatile month of April 2021, undermined by uncertain oil demand outlooks due to the COVID-19 resurgence in several parts of the world with different timing intervals.
EXECUTIVE SUMMARY
After five consecutive months of solid gains, crude oil prices eased on a monthly-average basis in a volatile month of April 2021, undermined by uncertain oil demand outlooks due to the COVID-19 resurgence in several parts of the world with different timing intervals. Investors were sensitive to pandemic developments and to economic indicators. On a monthly average, ICE Brent and NYMEX WTI grades fell 0.6% and 1.0%, respectively. In the first half of April, oil prices remained trading at the low levels registered in late Mach and came under further pressure after lockdown measures and mobility restrictions were extended in some European countries following the fast spread of the third wave of COVID-19 and as the infection rates and hospitalizations remained at high levels. Meantime, the virus spread continued in other parts of the world, particularly in India, Latin America and Japan, which heavily weighed on market sentiment. Slow global vaccination rates and vaccine issues in terms of distribution and side-effects also added to concerns. In the second half of April, the pandemic situation worsened in India, the third-largest oil consumer, and daily infections rose to record levels. The surge in infections raised concerns about the impact on oil demand and potential stricter and longer mobility restrictions and lockdowns. Moreover, April data showed a significant decline in land mobility in India. On the supply side, investors were also assessing the prospect of a rising oil supply from the participating producing countries in the OPEC+ agreement in the coming months.
In the second part of April 2021, the oil prices recouped part of their losses buoyed by solid economic data from the US and China, the world’s two largest economies, and from Europe. Along with signs of oil demand recovery in the US and Europe, the positive economic developments offset concerns about the deteriorating COVID-19 situation in India and other countries. Authorities in the US and Europe planned a gradual lifting of lockdown measures, which stoked optimism about the consolidation of the oil demand recovery and strengthened the demand outlook for the coming summer holidays season. The progress on vaccinations in the US, UK and some European countries added optimism. Market sentiment was bolstered after the International Monetary Fund (IMF) upgraded it projection for global economic growth in 2021 to 6.0%, and both OPEC and the International Energy Agency (IEA) April monthly reports showed upward revisions of global oil demand outlooks, by 0.19 mln bbl / d and 0.23 mln bbl / d respectively. So, the major crude oil benchmarks closed the month of April 2021 in the green zone with the ICE Brent adding more than $4.0 / bbl, or +6.4%% MoM, and the NYMEX WTI rose even more by $4.42 / bbl, or +7.5% MoM.
During the first three weeks of May 2021, the oil markets consolidated at the levels achieved in late April as inflation concerns limited overall investors risk appetite and both the OPEC and the IEA revised down their forecasts of the demand growth for H121 attributed to the resurgence in COVID-19 infection cases in India, Brazil and some other regions of the world. Nonetheless, both the prices of ICE Brent and NYMEX WTI benchmarks tried to move higher during the first part of the month and made some unsuccessful attempts to overcome strong resistance levels of $70.0 / bbl and $66.5 / bbl respectively. However, general risk aversion combined with fears of the progress in Iranian nuclear talks pushed oil prices lower from the highs. All in all, both the ICE Brent and the NYMEX WTI benchmarks ended the period under report higher with the ICE Brent added $2.2 / bbl, or +3.4%, and the NYMEX WTI rose by the same $2.2 / bbl, or +3.5%.
In April 2021, the total production of crude oil by states participating in the OPEC changed insignificantly relative to the level of March 2021 and decreased by 50 thsd bbl / d, or -0.2% MoM. The same time, the output of crude oil by the OPEC as a whole crushed in April 2021 by 5.17 mln bbl / d compared to one year ago level, or shocking -17.0% YoY. The output continued to deflate in yearly terms for the 12th consequent month. Monthly dynamics of crude oil production in different OPEC countries was uneven in April 2021. On absolute and relative bases, the most formidable contraction of crude oil production in the month under review was observed in Libya. The output of crude oil in this OPEC country demonstrated a decline by 6.6% MoM, or -80 thsd bbl / d in compare to the level of March. On the other hand, the strongest increase of oil production in the month under review was showed in Iran, where the production of crude oil experienced an expansion by 60 thsd bbl / d, or +2.6% MoM. The output of oil in Iran continued to grow on a monthly basis for 2 quarters in a row. In April 2021, the production achieved its peak value over recent 12 months equal to 2.41 mln bbl / d. The most recent 16th OPEC and non-OPEC Ministerial Meeting was held on April 27, 2021. OPEC+ ministers have endorsed their early April decision to boost supply by more than 2 mln bbl / d from May to July, including a gradual return of 1 mln bbl / d of Saudi Arabia’s production shut in on a voluntary basis since February 2021.
Total production of oil around the globe continued to grow in April 2021 in monthly terms and expanded by another 590 thsd bbl / d relative to March 2021, or +0.6% MoM. The production of oil worldwide showed an expansion for the second consequent month after a sudden drop in February caused by poor weather conditions in the USA. Moreover, the global output of oil in April increased to the highest level over last 12 month. Notwithstanding, in the longer-run, the volume of total oil production around the globe remained diminished by historical standards as before the pandemic comparable amounts of oil (~94 mln bbl / d) were produced in the world as a whole as early as in the middle of 2014. So, the total global output of oil in the month under review dropped by a little bit more than 6.0 mln bbl / d in contrast to the same month of the previous year, or -6.1% YoY. In absolute and relative terms, the most material increase of production of crude oil in April 2021 was registered in Brazil, where the extraction of crude oil skyrocketed by 728 thsd bbl / d, or incredible +22.3% MoM. It was the second consequent month of crude oil production growth in Brazil. In monthly terms, the rate of crude oil production growth speeded up to its peak print on records. Moreover, the rate of crude oil output growth in the country was higher than 3.0 STD of growth rates over the whole history of observations. Solid growth of oil output in April 2021 as against the month prior was also recorded in two largest Non-OPEC oil producing countries, namely the USA and Russia. Thus, the production of oil in the USA expanded in April by another 275 thsd bbl / d, or +1.5% MoM, the output increased over consequent 2 months. In Russia, the extraction of oil ramped up during the same period of time by 1.9% MoM, or +203 thsd bbl / d. The oil production in Russia also built up in April for consequent 2 months. On the other hand, China exhibited a deep fall of production of crude oil in April 2021 relative to March 2021. In the month under review, the output of oil in China showed a decrease by 138 thsd bbl / d, or -2.7% MoM, the worst monthly dynamics of the production in the country during last 2 years. Finally, the most rapid decline of oil output, on absolute and relative bases, in April 2021 was registered in Canada, where the crude oil production dropped considerably by 501 thsd bbl / d, or -8.9% MoM.
Total production of crude oil in the USA as a whole built up a little bit in April 2021 by 103 thsd bbl / d, or +0.6% MoM. On a monthly basis, the production of oil increased over the second consequent month. By the same token, in annual terms total oil output in the USA went down by 1.21 mln bbl / d in compare to one year ago level, or -7.0% YoY. From an annual dynamics standpoint, output of crude oil in the country proceeded to fall over consequent 12 months. By the same token, total shale oil output in the USA as a whole grew by 1.3% MoM, or +99 thsd bbl / d on a month-over-month basis. The production of shale oil in the USA built up within the second consequent month. On an annual basis, the production of shale oil in the USA felt moderately in April 2021 by 664 thsd bbl / d compared to April 2020, or -7.7% YoY.
Global oil consumption is now forecast to rise by 5.4 mln bbl / d in 2021, 270 thsd bbl / d lower than in the previous IEA monthly report, according to the most recent IEA monthly report. Europe and OECD Americas have been revised down by 320 thsd bbl / d and 515 thsd bbl / d respectively in 1Q21, while India’s COVID-19 crisis led the IEA to downgrade its demand in 2Q21 by 630 thsd bbl / d. The forecast for 2H21 is left roughly unchanged, however, based on expectations that vaccination campaigns continue to expand and the pandemic largely comes under control.
Total commercial stocks of crude oil and oil products in OECD states went on to diminish in February 2021 for the 7th month in a row and dropped slightly below the threshold of 3.0 bn bbl, to the lowest level since March 2020. The monthly decline was equal to 55.7 mln bbl, or -1.8% MoM. Meanwhile, comparing to one year ago level, the inventories in OECD states again showed a positive performance within the month under review, although not so sizeable as it was during the recent months. The yearly expansion of the stocks was equal to 93.7 mln bbl, or +3.2% YoY, and this is the lowest yearly growth rate over last 11 months. According the preliminary IEA data, total OECD industry stocks fell by 25 mln bbl to 2 951 mln bbl in March 2021, reducing the overhang versus the 2016-2020 average to a marginal 1.7 mln bbl. Product stocks led the draw by 31.3 mln bbl, while crude inventories rose by 6.1 mln bbl. The global supply and demand balance shows implied stock draws easing to 820 thsd bbl / d in 1Q21 from 2.28 mln bbl / d in 4Q20.
In April 2021, total commercial stockpiles of oil in the USA as a whole reversed after a growth in March and contracted by 19.3 mln bbl as opposite to the month prior, or -2.2% MoM. It is hard to believe, but total commercial inventories of oil in the country shrank in April 2021 to its minimum print in the course of the recent year equal to 857 mln bbl. The main cutback was achieved in stocks of refined oil products, while crude oil inventories contributed less. So, in yearly terms, total stockpiles of oil in the USA in April 2021 declined by more than 72 mln bbl in contrast to April 2020, or -7.8% YoY, the fastest rate of yearly decline of the indicator over last 2 years.
Crude oil inventories in the Cushing storage in Oklahoma felt in April 2021 over the 6th consequent month and decreased by another 0.7 mln bbl relative to March 2021 level, or -1.6% MoM. A volume of the stocks in Cushing in the month under review sank to the lowest level since March 2020 and proceeded to sank 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 April 2021 also showed a negative performance and crumbled by serious 17.1 mln bbl, or -26.9% YoY.
Total stocks of crude oil that held offshore globally in April 2021 continued to grow for the 2nd month in a row and bloated out by another 4.4 mln bbl relative to the volume of March, or + 4.3% MoM. In absolute terms, the volume of floating oil inventories worldwide rose to 106.7 mln bbl as of the end of April 2021. By the same token, crude oil floating stocks went down in April 2021 by significant 33.6% YoY, or -53.9 mln bbl, as compared to one year ago level. It’s no wonder as in pre-COVID times the volume of global crude oil offshore stocks usually fluctuated in a range of 50-70 mln bbl that is considerably lower than the current level. On a year-over-year basis, total crude oil floating stocks continued to grow for 13 months in a row.