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  • Writer's pictureArbat Capital

Oil Market Report - November 2023

In November 2023, Brent and WTI crude oil prices exhibited a clear downward trend, influenced by a mix of geopolitical tensions, expectations of OPEC+ production decisions, and economic indicators. Brent crude, starting the month at higher levels, gradually declined to below $80 by the end of the month, while WTI also decreased, ending below $75.


In November 2023, Brent and WTI crude oil prices exhibited a clear downward trend, influenced by a mix of geopolitical tensions, expectations of OPEC+ production decisions, and economic indicators. Brent crude, starting the month at higher levels, gradually declined to below $80 by the end of the month, while WTI also decreased, ending below $75. Key factors impacting these movements included the Israeli-Hamas conflict and Iranian tensions, which were offset by the market's low-risk assessment of supply disruption. Speculations regarding extension of OPEC+'s supply cuts and Saudi Arabia and Russia's voluntary cuts also played a crucial role as the next OPEC+ meeting is scheduled on November 30, 2023. Furthermore, economic data showing a weakening U.S. service sector and China's slowed export activities further fueled concerns about reduced global oil demand, influencing the market sentiment negatively. As of November 24, the ICE Brent front-month future plunged to around of $80.0 per barrel, falling by roughly $5.0, or -5.9%, relative to the end of October, while the NYMEX WTI near-month contract tumbled even more severely, plummeting by approximately $6.0, or -7.3%, by contrast to a month ago to settle at $75.0 per barrel. So, both benchmarks are headed to end the month near their 4-month lows.

Semi-annual OPEC+ meeting postponed on November 30, 2023 will be the key event for the crude oil market in the short and medium term as production cuts under the OPEC+ agreement as well as additional voluntary cuts delivered by Saudi Arabia and Russia are very essential components of the overall tight current balance on the oil market. So, the question of these cuts’ extension on the first half / the whole 2024 year is crucial for further oil market development. Taking into consideration the current weakness of crude oil prices relative to the levels observed in August-September, we completely share the market believe that all the production adjustments, both required under the OPEC+ deal terms and voluntary, will be extended far beyond the turn of 2024. However, the question of providing another additional output reduction by OPEC+, which is speculated over now, is more complicated, in our view, as such decisions will raise additional budget issues for the states will be involved. On the other hand, as the IEA has already warned that keeping the status-quo in OPEC+ supply cuts will result in a certain surplus on the global oil market in 2024, such decision can lead to another sell-off in the crude oil market with prices falling to low $70s for ICE Brent and below $70 for NYMEX WTI futures. Depending on the terms of the OPEC+ decision on November 30 (including Saudi Arabia’s and Russia’s decision on their voluntary cuts), we see crude oil prices either to fall in December 2023 to their major support zone of $70-72 per barrel of ICE Brent or to get stronger grounds and hold on in a range of $80-90.

Global oil production reached 102.31 million barrels per day (mbd) in October 2023, showcasing a significant month-over-month increase of 0.97 mbd, or almost 1.0% MoM, and posting its best monthly performance over the past 4 months, according to the most recent monthly report of the U.S. Energy Information Administration (EIA). The upward momentum in the global oil output continued for the second month in a row and helped the output to finally surpassed the previous all-time high recorded in the turn of 2018. So, the reported month stood out as a period of historical significance, marking the new highest production level throughout the history. This monthly growth pattern was echoed on a year-over-year basis as well, with an increase of 0.93 mbd, translating to a 0.9% YoY rise, also the fastest one in a quarter. In such circumstances, the total oil production around the globe in October 2023 was significantly above the 5-year average for the same month, exceeding it by 3.49 mbd, or 3.5%, highlighting a marked increase in production levels compared to post-pandemic years.

The International Energy Agency (IEA), in its turn, said in its most recent monthly report that world oil supply growth is also exceeding expectations. Fears that the war between Israel and Hamas would escalate into a wider regional conflict, disrupting oil supply flows, have yet to materialize. Barring large unforeseen outages, world oil supply is firmly on an upward trajectory, with October output up 320 kbd relative to the prior month. Record output from the United States, Brazil and Guyana underpin this year’s 1.7 mbd increase in global oil supplies, to a record 101.8 mbd. In 2024, non-OPEC+ producers will continue to lead global growth, projected at 1.6 mbd, to an unprecedented 103.4 mbd. A temporary easing of US sanctions on Venezuela in late October is expected to have only a marginal impact on supply, as production increases from the country’s battered oil sector will take time and investment.

According to cartel’s own data, OPEC total crude oil production experienced a modest uptick in October 2023 comparing to the previous month, registering a rise of 371 kbd, which translates to a growth of 1.3% month-over-month. This increase marked the highest rate of monthly growth witnessed in the last 14 months, and it continued an upward trend that has been ongoing for 3 months. Thanks to this recent boost, the production level reached its peak value over a span of 4 months. However, when compared to the same month in the previous year, the picture shifts. The OPEC production decreased significantly by 1.7 mbd relative to a year ago, a decline of 5.6% YoY. This decline was part of a persistent downward trend observed over 7 months on a YoY basis, although the pace of shrinkage weakened to the slowest rate in the past 4 months. Furthermore, when the recent production figures are juxtaposed with the 5-year average for the same month, a shortfall becomes evident. The production was lower in October 2023 by approximately 0.6 mbd, indicating a deviation of -2.2% from the average. The month of October 2023 was marked by a mixture of upward and downward movements of crude oil output across the OPEC nations. While Nigeria and Iran demonstrated robust growth of crude production, others like Saudi Arabia and Venezuela experienced slight contractions of their oil supply.

Meantime, the IEA and the EIA provided quite different evaluations of OPEC’s crude oil supply in October 2023. In particular, the IEA presented an estimate slightly on the higher side, at 28.21 mbd. This upward revision, amounting to a 310 kbd surplus, indicates a marginally more optimistic assessment of OPEC's output. On the other hand, the EIA's assessment tilts towards a conservative stance, placing OPEC's production at 27.77 mbd, which is 135 kbd less than OPEC's reported figure.

Total oil production from non-OPEC countries stood in October 2023 at 69.23 mbd. This level represented an increase of 0.82 mbd from the previous month, amounting to a 1.2% MoM growth. This rate of growth was the fastest observed in the past 9 months, indicating a significant upturn in production activities across non-OPEC nations, continued for the second month in a row. The year-over-year analysis showed an even more substantial increase in production of 2.49 mbd, translating to a 3.7% YoY rise compared to the same period last year, being the highest annual growth rate in 4 months. The reported month also marked a continuation of an upward year-over-year trend, which has been ongoing for 30 months. Moreover, the October 2023 production level was the new highest one on records, marking a new significant peak in non-OPEC oil production. Furthermore, the production was 4.11 mbd above the 5-year average for the same month, which is a 6.3% increase relative to that average. The larger part of major non-OPEC oil-producing countries provided positive monthly dynamics of oil production in October 2023 comparing to the prior month with the most part of the growth contributed by Norway, Canada and the United States.

U.S. total oil production experienced a notable increase in October 2023, both on a month-over-month and year-over-year basis. The monthly change showed an upward movement of 112 thousand barrels per day (kbd), equating to a 0.5% MoM rise. This increment was part of an ongoing upward trend, sustained over the past 8 months. In result, the U.S. oil production in October reached a new peak, setting a record as the highest value over the whole history of observations. Regarding annual dynamics, there was a significant boost in production as well, with an absolute increase of 1.28 mbd, translating to a 6.1% YoY enhancement compared to the same month in the previous year. This rise continues a 31-month long upward YoY trend, demonstrating consistent growth. When compared to the 5-year average for the same month, the production was markedly higher in the month under report, exceeding the average by 2.8 mbd, or 14.4% more. However, the U.S. witnessed contrasting trends in constituents of total oil production with Natural Gas Liquids (NGLs) and Renewable fuel leading the charge and Crude oil and Processing gain offset the growth. Thus, the U.S. crude oil production saw a decrease of 31 kbd in October compared to the previous month, marking a moderate MoM decline of 0.2% while U.S. NGLs production showcased a robust growth pattern in the same, expressing let the output of NGLs to achieve its new highest value on records of 6.55 mbd.

U.S. shale oil production was recorded in October 2023 at 9.86 mbd, showing a decline of 38 kbd from the previous month. This change represents a minor month-over-month decrease of 0.4%. However, this decline was the worst one in a 10-month period and reversed an upward trend which had been persisted during preceding 5 months. Notably, the output sank to the lowest in the past 2 months, indicating a slight dip in the short term. On a year-over-year basis, the U.S. shale oil supply experienced a substantial increase, adding 484 kbd, which equates to a 5.2% YoY growth compared to the same month last year. This increment continues a notable upward trend that has persisted for 30 months, though it was the slowest one in relative terms over more than 2 years. In terms of performance against historical averages, October 2023's shale oil production was significantly higher than the 5-year average for the same month, surpassing it by 1.19 mbd or 13.7%. The most part of US shale oil fields provided negative production dynamics in October 2023 relative to the month prior, except for Niobrara and Anadarko, though the major decline was supported by Eagle Ford and Permian.

World oil demand continues to exceed expectations. In its most recent monthly report, the IEA has slightly revised up its 2023 growth forecast to 2.4 mbd, as the U.S. deliveries proved more resilient than indicated by preliminary data and Chinese oil demand in September set another all-time high above 17 mbd, fueled by a booming petrochemical sector. Those gains have come to the detriment of petrochemical producers elsewhere, most notably in Europe and advanced economies in Asia and Oceania. Indeed, the two regions saw 3Q23 oil demand slump by a combined 560 thousand barrels per day (kbd) year-on-year. This year’s surge will take world oil demand to 102 mbd before growth eases to 930 kbd in 2024 as the last phase of the pandemic economic rebound dissipates and as advancing energy efficiency gains, expanding electric vehicle fleets and structural factors reassert themselves. Despite growth that is almost two-thirds lower than this year’s increase, global oil demand is set to rise to a record annual high of 102.9 mbd in 2024.

However, the most recent data of the EIA suggests that global consumption of crude oil and petroleum products manifested a moderate contraction in October 2023, a slight decrement of 1.07 mbd from the preceding month. This decline reflected a marginal dip of 1.0% on a month-over-month basis, being, hence, the worst monthly weakening in the past 3 quarters and the first contraction over recent 3 months. However, on a year-over-year perspective, the global demand escalated by 2.30 mbd, translating to a growth of 2.3% YoY, which is the most rapid annual improvement of the consumption throughout last 14 months. October 2023 marked an interesting phase in oil dynamics, with the world consumption hitting a trough over a span of 5 months, yet illustrating a robust upward yearly trend extending over 10 months. Notably, the consumption stood 2.70 mbd higher than the 5-year average for the same month, indicating a relative increment of 2.8%.

Global observed oil inventories rose by 9.9 mb in September 2023, but remain near historical lows, according to the most recent monthly report of the IEA. Oil on water rebounded by 25.3 mb and OECD stocks inched up by 2.9 mb while non-OECD inventories declined by 18.3 mb. In 3Q23, crude oil stocks plunged by a massive 141.4 mb and oil product built by 112.7 mb as supply cuts by OPEC+ countries coincided with increased refinery activity.

Meantime, OECD total oil inventories experienced a slight month-over-month decrease in August 2023, with a change of -1.87 million tons relative to the month prior, translating to a -0.4% MoM change. This decrease led to the lowest inventory levels recorded in the past 8 months. The year-over-year performance also showed a marginal decline, with a change of -1.79 million tons, or -0.4% YoY. This downward trajectory has been ongoing for 7 months, indicating a sustained reduction in oil inventories over a longer period. When the most recent figures are compared with the 5-year average for the same month, a substantial shortfall becomes evident. The total OECD inventories were lower by 53.97 million tons, representing a 10.3% decrease compared to the historical average.

U.S. total oil inventories experienced a decrease of 10.17 mb in October 2023, translating to a 0.6% MoM reduction. Year-over-year metrics show a more pronounced decline of 22.4 mb, equivalent to a 1.4% YoY drop. This drop was part of a broader, ongoing downward shift, continuing for the past 32 months. In terms of longer-term comparisons, the October 2023 inventory levels were significantly lower than the five-year average for the same period. The absolute difference from the five-year average stands at -265.0 mb, a relative difference of -14.2%. The monthly decline in U.S. total oil inventories was primarily driven by the negative dynamics of the country's commercial stocks, while the volume of oil stored in the Strategic Petroleum Reserves (SPR) saw a marginal increase. Thus, the U.S. SPR displayed a nuanced month-over-month uptick of 77 thousand barrels (kb) in October 2023, a negligible increment registering as a nearly 0.0% MoM change. Turning to U.S. commercial oil inventories, a monthly decrement of 10.25 mb was recorded within the same month, a decline of 0.8% MoM.

Oil inventories at Cushing, Oklahoma, was recorded at 21.5 mb in October 2023, reflecting a contraction of 0.6 mb from the previous month. This reduction, translating to a 2.7% MoM decline, marked a continuation of a downward trend over the past 4 months, which drove the volume of the stocks to their 16-month low. Hence, it was the least considerable monthly decline over this period. Looking at the year-over-year comparison, the picture becomes more pronounced. The inventory level had witnessed a significant reduction of 6.7 mb, equivalent to a substantial 23.7% YoY decrease, the steepest one in the past 10 months. Not a surprise, the October 2023 level of the stocks showed a significant deviation in the comparison with the 5-year average for the same month, being 17.2 mb below the average, a 44.4% difference.

Global offshore oil inventories experienced a notable contraction in October 2023. The month-over-month dynamics was characterized by a decline of 8.7 mb, translating into a 10.0% MoM reduction. This decline, while significant, was not the most pronounced in the recent months, being the steepest one over only a 2-month period. On a year-over-year basis, the situation appeared somewhat more acute. The global inventories saw a substantial decrease of 18.5 mb, a stark 19.1% YoY drop compared to the same month in the previous year. This marked a considerable deviation from the previous year's levels, with the value being the lowest in the last 13 months. The YoY data indicated a break in the upward trend that had lasted for 7 months. In comparison to the 5-year average for the same month, the current inventory levels were significantly lower, with a shortfall of 6.5 mb, amounting to a 7.7% decrease. Asia delivered the main cutback in inventories, while the Middle East Gulf stocks also depleted. In contrast, the US Gulf Coast faced a sharp expansion in the stocks, and West Africa experienced a solid growth of the inventories, impacting the overall global dynamics. Europe and the North Sea provided positive dynamics of their stockpiles as well, albeit to a lesser degree.

AC - Oil Market Report - Nov-2023
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