Crude oil prices moved modestly lower in April 2022 on a monthly average basis amid a market selloff, losing almost 6% comparing to the average price in March 2022.
EXECUTIVE SUMMARY
Crude oil prices moved modestly lower in April 2022 on a monthly average basis amid a market selloff, losing almost 6% comparing to the average price in March 2022.The market retreated from the recent multi-year highs as short-term oil supply concerns that had supported oil prices in the month prior lessened. Moreover, investors eyed the resurgence of COVID-19 contaminations in China and the reinstatement of more COVID-19-related lockdowns, including in Shanghai area, which weighed on the oil demand outlook. Nevertheless, both ICE Brent and NYMEX WTI benchmarks remained above the threshold of $100.0 / bbl. The ICE Brent front-month contract declined by $6.54 in April 2022, or -5.8% MoM, to average $105.92 / bbl, and NYMEX WTI front-month contract fell by $6.62 within the month, or -6.1% MoM, to average $101.64 / bbl.Meanwhile, year-to-date, ICE Brent active futures was $37.49, or +60.2%, higher at $99.81 / bbl, while NYMEX WTI active futures was higher by $37.58, or +63.6%, at $96.63 / bbl, compared with the same period a year earlier.
During the first weeks of May 2022 the crude oil market continued to fluctuate in a wide range of $100-120 / bbl, as of the ICE Brent front-month contract. The volatility on the market remained elevated as the prices proceeded to balance rather close to their multi-year highs, supported by geopolitical tensions.In particular, concerns regarding possible EU’s ban on oil and gas exports from Russia in the near-term due to continuation of the conflict in Ukraine still have provided a solid grounds for Brent crude oil to trade above the threshold of $100.0 / bbl in May 2022 as well, demonstrating gains of nearly 50% YoY. Another factor supporting of high crude oil prices in first two decades of May 2022 was continuous tightening of global fuel-product markets, especially in the US, where gasoline and diesel prices have risen to unprecedented levels in the run-up to summer driving season. Nationwide travel is expected to approach levels seen before the coronavirus pandemic in the US, according to a forecast from auto club AAA, so US average retail gasoline prices topped $4.50 a gallon for the first time in history. On the other hand, gains on the oil market within the first 20 days of May 2022 were limited due to remaining concerns about global economic outlook in circumstances of monetary tightening in the US, continuous war conflict in Eastern Europe and new pandemic outbreak in China. US decision to release of 1.0 mln bbl / d of crude oil for 6 months, starting from May 2022, from the U.S. Strategic Petroleum Reserve (SPR) also weighed on crude oil prices, as well as hopes for easing of restrictions on supply from such sanctioned states as Iran and Venezuela in the second half of the year.
All in all, both ICE Brent and NYMEX WTI front-month contracts again ended the period in the green zone, for the 5th consecutive month, though the pace of growth was limited.The ICE Brent active contract rose further by $4.64 / bbl in contrast with the level of April 20, 2022, or +4.3%, and ended the period under report at $111.5 / bbl as of May 20, 2022. The NYMEX WTI near-month contract showed more material growth within the period and rose by $6.78 / bbl, or +6.6%, to settle at $109.0 / bbl as of May 20, 2022.
According to Bloomberg’s estimates, total crude oil production of the OPEC barely changed in April 2022 relative to the month prior. The increase was equal to just 10 thsd bbl / d, or less than +0.1% MoM, though OPEC+ group agreed to speed up somewhat its supply cuts reduction strategy to 432 thsd bbl / d per month from 400 thsd bbl / d per month earlier.However, technically, it was the 12th consequent month of OPEC’s total crude oil production expansion. So, the volume of the output reached its new maximal level of 28.70 mln bbl / d since April 2020. On an annual basis, total crude oil output of the cartel again delivered a very strong growth in April 2022, equal to +3.46 mln bbl / d relative to the level of April 2021, or +13.7% YoY. From a yearly performance point of view, the output continued to grow over 12 months in a row. On the one hand,the most considerable monthly growth of crude oil production in absolute terms in April 2022 was registered in Iraq. The output in this OPEC participating country grew during the month under review by 170 thsd bbl / d, or almost +4.0% MoM, the most rapid monthly expansion of the production for more than a year. Also, it was the second consecutive month of output growth in the country, so the volume of the output rose to its new maximum value since April 2020 equal to 4.46 mln bbl / d. The crude oil production in Saudi Arabia demonstrated an increase of 70 thsd bbl / d as against with the volume of March 2022, or +0.7% MoM. Nevertheless, the extraction of oil in the kingdom continued to grow throughout 12 months in a row and went up to its new highest value since April 2020 equal to 10.34 mln bbl / d. On the other hand, the most material monthly drop of crude oil output in April 2022 was recorded in Libya. The production of crude oil in the country weakened by 150 thsd bbl / d in compare to the level of March 2022, or severe -14.3% MoM, and sank to its lowest level since October 2020. Nigeria also demonstrated a strong monthly contraction of its crude oil output in the month under review. The production of crude oil in this OPEC state declined by 60 thsd bbl / d relative to the previous month, or -4.1% MoM, the third month of decline in a row. In result, the output of crude oil in Nigeria slid down to the lowest volume in the course of last 5 years equal to just 1.42 mln bbl / d.
Despite to the worsening of the situation with crude oil and petroleum products deliveries from Russia, the most recent 28th OPEC and non-OPEC Ministerial Meeting, which was held on May 5, 2022, turned out to be non-event, as OPEC+ group has simply decided to wait after it agreed to speed-up the supply cuts reduction process at the prior Meeting.To be more precise, the Meeting reconfirmed the production adjustment plan and the monthly production adjustment mechanism approved at the 19th OPEC and non-OPEC Ministerial Meeting and the decision to adjust upward the monthly overall production by 0.432 mln bbl / d for the month of June 2022, as per the attached schedule. Also, the Meeting reiterated the critical importance of adhering to full conformity and to the compensation mechanism, taking advantage of the extension of the compensation period until the end of June 2022. The next 29th OPEC+ meeting is scheduled for June 2, 2022.
Total oil production worldwide decreased modestly in April 2022 by 665 thsd bbl / d comparing to the volume of March 2022, or -0.7% MoM, as tough sanctions imposed on Russia by western countries resulted inter alia in a sharp decline of its oil output. So, it was the worst monthly performance of the global oil production since February 2021, though in absolute terms the volume of the output still has remained close to the upper border of the range of recent two years. In yearly terms, the global production in April 2022 again was considerably higher than it was one year ago, but the speed of its annual expansion continued to decelerate comparing to preceding months. The yearly growth of the output in April 2022 was equal to 4.80 mln bbl / d, or +5.1% YoY. It was the 13th consequent month of widening on a yearly basis. Relative to the pandemic trough, recorded in May 2020, total production of oil worldwide was higher in the month under review by 10.54 mln bbl / d, or +12.0%. On a single country level, the most severe monthly fall of oil production in the month under review was recorded in Russia, as the output in the country crushed in result of tough sanctions imposed on Russia by western states, even though the direct ban of oil exports from Russia in April 2022 still wasn’t implemented. More exactly, total oil output in Russia collapsed in April 2022 by nearly 1.0 mln bbl / d in compare to the one month ago level, or dramatic -8.8% MoM, the sharpest monthly drop of the production since the pandemic hit in the second quarter of 2020. The production of oil in Russia experienced a contraction within the second consequent month and sank to the lowest mark since December 2020 equal to 10.29 mln bbl / d. However, in relative terms, even more rapid monthly decline of oil extraction in the month under review was observed in the other ex-USSR states as CPC marine terminal (a major export terminal for Kazakhstan) still was offline during the month after it was damaged in late March and the overall ship traffic in the Black Sea was limited due to continued conflict in Ukraine. So, the aggregate oil output of other ex-USSR counties tumbled in April 2022 by another 307 thsd bbl / d relative to the month prior, or -10.2% MoM, also the steepest monthly drop since the initial pandemic hit and the fourth month of contraction in a row. Furthermore, the rate of decline was equal to -2.96 SD of monthly growth rates over the history. China demonstrated a rapid fall of its oil output in April 2022 from a monthly dynamic standpoint as well. Due to COVID-19 related strict lockdowns, total oil production in the country collapsed during the month by 184 thsd bbl / d, or -3.5% MoM, the record monthly decline of the output throughout preceding 5 years.
According to the weekly US DOE data, primary domestic oil production in the US, counted as the sum of crude oil and NGLs production, continued to weaken in April 2022 for the second month in a row and decreased further by 37 thsd bbl / d relative to the volume of the previous month, or -0.2% MoM, though the dynamics of the overall oil output in the country during the month again was strongly positive. In spite of two consequent month of narrowing, the volume of the primary output in the US still remained close to its highest level over recent 2 years. But the gap relative to the volume of production in the last pre-pandemic month, namely February 2020, widened in April 2022 to 676 thsd bbl / d. On an annual basis, the primary domestic oil production in the US again delivered strongly positive dynamics in April 2022, along with preceding months. More exactly, it expanded by 1.18 mln bbl / d in compare to the one year ago level, or +7.3% YoY. On an annual basis, the output built up within 12 months in a row. The monthly shrinkage of the primary domestic oil production in the US in April 2022 was again fully attributed to a decline of NGLs production, while the output of crude oil in the country, on the contrary, provided a certain expansion relative to the level of the previous month.
Total production of shale oil in the US continued to grow in April 2022 for the third month in a row and expanded by another 57 thsd bbl / d in contrast to the volume of the preceding month, or +0.7% MoM, and rose to its new highest level since March 2020, equal to 8.76 mln bbl / d. Nevertheless, in compare to the pre-pandemic level, the volume of the output in April 2022 was nearly 540 thsd bbl / d lower. In yearly terms, the shale oil production in the US again demonstrated a much stronger expansion, comparing to the monthly dynamics, along with preceding months. The annual growth of the output in April 2022 was equal to 650 thsd bbl / d, or +8.0% YoY. It was the 12th consequent month of expansion of the production in the US in yearly terms. The larger half of shale oil deposits in the US exhibited an expansion of their production in April 2022 as against with the levels of March 2022. In absolute terms, the strongest monthly growth of the output in the month under review was recorded on the deposit of Permian. The production of shale oil on the field ramped up in April 2022 by 134 thsd bbl / d relative to the month prior, or +2.6% MoM, the third month of expansion in a row. In result, the output on the field of Permian increased during the month to its new maximum volume on records equal to 5.27 mln bbl / d.
Under the most recent IEA monthly report, soaring crude oil prices and slowing economic growth are expected to significantly curb the demand recovery through the remainder of the year and into 2023. Moreover, extended lockdowns across China where the government struggles to contain the spread of COVID-19 are driving a significant slowdown in the world’s second largest oil consumer. For the year as a whole, global oil demand is forecast to average 99.4 mln bbl / d in 2022, up 1.8 mln bbl / d from 2021. More exactly, world oil demand growth is forecast to slow to 1.9 mln bbl / d in 2Q22 from 4.4 mln bbl / d in 1Q22 and is now projected to ease to 490 thsd bbl / d on average in the second half of the year on a more tempered economic expansion and higher prices. As restrictions in China ease, summer driving picks up and jet fuel continues to recover, world oil demand is set to rise by 3.6 mln bbl / d from an April 2022 low through August 2022. If refiners cannot keep pace, product markets and consumers could come under additional strain.
Total commercial stocks of crude oil and petroleum products in OECD states continued to exhaust in February 2022 for the 13th month in a row and narrowed further by humble 2.4 mln bbl relative to the figure of January 2022, or insignificant -0.1% MoM. So, the volume of the inventories sank to its new marginal minimal level of 2.619 bn bbl since March 2014, by that again remaining deep below the average and minimal levels for the corresponding month of a year over last 5 years. On an annual basis, total commercial stocks of crude oil and petroleum products in OECD states obviously delivered strongly negative dynamics in February 2022, the same as during several preceding months. The volume of the stockpiles tumbled by 356.1 mln bbl in compare to the one year ago level, or -12.0% YoY, that is somewhat less pronounced yearly drop, as compared to the one in January 2022.
According the preliminary IEA assessments, global observed oil inventories declined by a further 45 mln bbl during March 2022 to end the month a total 1.2 billion barrels lower since June 2020. In the OECD, the release of 24.7 mln bbl of government stocks during March 2022 halted the precipitous decline in industry inventories. OECD total crude oil and petroleum products inventories rose by 3 mln bbl to 2.626 bn bbl, but remained 299 mln bbl below the five-year average. Early data for April 2022 show OECD total oil inventories increased by 5.3 mln bbl.
Total stockpiles of crude oil and petroleum products in the US continued to diminish in April 2022 for the third month in a row and declined further by 13.01 mln bbl in contrast to the volume of March 2022, or -1.7% MoM. The stockpiles sank to their new record low throughout last 5 years equal to less than 750 mln bbl and, therefore, remained well below the lower bound of the range for the corresponding month of a year for recent 5 years. In yearly terms, total inventories of crude oil and petroleum products in the US again demonstrated a much more significant deterioration in April 2022, comparing to the monthly dynamics, along with preceding months, and tumbled by a sizeable amount of 107.8 mln bbl, or serious -12.6% YoY. The inventories in the US kept on exhausting on an annual basis for 13 months in a row. Recall that the total stockpiles of crude oil and oil products in the US reached their all-time high in May-June of 2020, when the volume of the stocks was equal to 964 mln bbl. As compared to that level, the inventories in April 2022 were lower by 214 mln bbl, or -22.2%.
Crude oil inventories in the Cushing storage in Oklahoma (the basis for NYMEX WTI crude oil futures) continued to grow rapidly in April 2022 for the second month in a row and expanded by further 4.6 mln bbl in compare to the level of March 2022, or dramatic +19.0% MoM. Nevertheless, despite to their impressive monthly expansion, the volume of the stocks in the storage still has remained well below the lower border of the range for the corresponding month of a year over last 5 years. However, on an annual basis, crude oil inventories in Cushing still were significantly lower in the month under review. The stocks tumbled by 17.5 mln bbl relative to the one year ago level, or -37.8% YoY, again a tangible deceleration of the decline relative to the previous month. It was the 13th month in a row of Cushing stocks depletion in yearly terms.
Total floating inventories of crude oil around the globe expanded in April 2022 by 10.0 mln bbl in comparison with the volume of the month prior, or +10.6% MoM. The figure of March 2022 was also revised to the upside by nearly 5.0 mln bbl. In result, the volume of the stocks for the first time in 6 months exceeded the threshold of 100.0 mln bbl and rose to the highest level over recent 12 months. Obviously, in April 2022, the volume of the world floating crude oil stockpiles remained above the average level for the corresponding month of a year over last 5 years. However, annual dynamics of total offshore stockpiles of crude oil around the world was again negative in April 2022, for the second month in a row. The stocks depleted by 9.2 mln bbl as against with the level of April 2021, or -8.1% YoY. The solid monthly expansion of the overall global floating inventories of crude oil in April 2022 was mainly attributed to the growth of the stocks in Asia. So, floating stockpiles of crude oil in the region expanded during the month under review by 6.3 mln bbl relative to the month prior, or +10.7% MoM. In monthly terms, the inventories in Asia demonstrated a rise throughout 2 months in a row. But on a relative basis, the most significant monthly increase of crude oil stocks that held on floating storages in April 2022 was observed in West Africa. The stocks in the region widened by 1.5 mln bbl within the month, or +16.9% MoM, the second consequent month of expansion. Moreover, the volume of the floating stockpiles of crude oil in West Africa came up in April 2022 its maximum volume of 10.68 mln bbl during the whole history of observations.