Crude oil prices bounced back in September 2021, ending the month substantially higher compared with August. ICE Brent was up 6.2% on a monthly average, mirroring investors’ perception of robust global oil market fundamentals this winter.
EXECUTIVE SUMMARY
Crude oil prices bounced back in September 2021, ending the month substantially higher compared with August. ICE Brent was up 6.2% on a monthly average, mirroring investors’ perception of robust global oil market fundamentals this winter. Worries were fuelled by soaring gas, coal, and electricity prices in several regions and trading hubs, amid a potential risk of gas and coal shortages in the coming months. Earlier in the month, oil prices were buoyed by worries about tightening global oil supply amid a slow recovery in the US Gulf of Mexico production, production maintenance in several regions, and signs of strengthening global demand, which resulted in a further decline in OECD stocks in August. They fell by 19.5 mln bbl compared to July 2021 to stand below the 2015-2019 average. EIA weekly data showing seven weeks of consecutive declines in US crude oil stocks, which are now their lowest since October 2018, also helped push oil prices higher. Easing worries about the oil demand outlook, specifically in Asia, given the improving COVID-19 situation in major Asian countries, additional signs of a demand recovery and the return of crude buying interests in Asia further supported oil prices. Crude oil prices rallied further in the second half of September to their highest level in about three years. Prices were boosted by a bullish futures market, as soaring energy prices, specifically for gas, coal and electricity, amid a potential risk of energy shortages in the winter season, prompted investors to bet on higher demand for oil, which pushed up oil prices. All in all, the ICE Brent front-month futures rose by $4.37 / bbl, or +6.2% MoM, in September 2021 to average $74.88 / bbl, while NYMEX WTI increased by $3.83 / bbl, or +5.7% MoM, to average $71.54 / bbl. From the longer-term standpoint, ICE Brent was $25.44 higher YTD on average, or +59.8%, at $67.97 / bbl, while NYMEX WTI was $26.83 higher YTD on average, or +70.2%, at $65.04 / bbl.
However, the oil price rally was capped in September by a strong US dollar compared to a basket of other major currencies that rose to its highest in around one year, and as concerns about crude oil supply eased slightly later in the month as oil production in the US Gulf of Mexico continued to restart. Mixed economic data from China, including lower manufacturing activity in September, worries about the financial troubles of China’s Evergrande group, along with a statement from the National Food and Strategic Reserves Administration that it would release oil reserves via public auction to domestic refiners, weighed on oil prices. Finally, oil production from OPEC+ participating countries continued to rise following the decision to adjust upward their overall production by 0.4 mln bbl / d on a monthly basis starting August 2021.
Nevertheless, the crude oil rally continued in the course of the first two weeks of October 2021 with ICE Brent rose to near its three-year high above $85.0 / bbl. The bullishness in the crude oil market followed the OPEC+ decision not to deliver an additional boost to oil supply and stick to the earlier production adjustment plan because it is predicted that global oil inventories will start to soar in 2022. Further support was provided by monthly reports by the OPEC and the IEA confirming global supply shortages, improving mobility and an increased demand outlook. At the same time, the fact that some OPEC countries have struggled to increase output due to a lack of operating capacity and compliance with the planned output cuts, among other reasons, have kept oil supplies tight in the short term. Crude oil prices also has been supported in the first weeks of October 2021 by high natural gas prices, encouraging users to switch to fuel oil and diesel for power generation especially as colder weather approaches in the Northern Hemisphere. Moreover, crude oil demand is likely to remain supported by the recent developments on Chinese crude imports quota, as Beijing announced the issue of a new batch of quotas for private refiners after weak weaker-than-expected crude imports volumes in September. So, both ICE Brent and NYMEX WTI benchmarks ended the period under report considerably higher. The ICE Brent front-month futures contract skyrocketed since September 20, 2021 by $10.56 / bbl, or impressive +14.3%, and the NYMEX WTI nearest contract jumped by $11.70 / bbl, or overwhelming +16.7% over the same period of time.
Total crude oil output of the OPEC as a whole again extended in September 2021 as against the previous month, as the cartel continued the OPEC+ policy of gradual reduction of the COVID-related supply cuts. The monthly growth was equal to 360 thsd bbl / d, or +1.3% MoM, in compare to the agreed overall OPEC+ monthly adjustment of 400 thsd bbl / d. It was the 5th month of OPEC’s total production expansion in a row. The output rose to its new highest level since April 2020 of nearly 27.5 mln bbl / d. In annual terms, total production of crude oil by the states, participating in the OPEC, kept on to express much more encouraging positive dynamics in September 2021, comparing to the performance on a monthly basis. The annual growth of the output was equal to 3.2 mln bbl / d, or +13.3% YoY. From a yearly performance point of view, the output of crude oil in the cartel ramped up over 5 months in a row. In absolute terms, the most considerable growth of the output in the month under review was observed in Nigeria, where the production of crude oil went up by 120 thsd bbl / d relative to the month prior, or impressive +8.4% MoM. Angola also showed a considerable increase of its production of crude oil in the month under consideration from a standpoint of a monthly change. The output of oil there expanded by 60 thsd bbl / d, or +5.4% MoM. Such OPEC countries as Iraq, Kuwait, Saudi Arabia and the U.A.E. showed a feebler rise of their crude oil production in September 2021 from a monthly performance standpoint. The only OPEC state that produced less oil in September 2021 by contrast to the previous month was Iran, although the monthly decline of the production there wasn’t very significant. The extraction of crude oil decreased in the country by just 20 thsd bbl / d, or -0.8% MoM.
The most recent 21st OPEC and non-OPEC Ministerial Meeting was held on October 4, 2021 and, in fact, again was even less nonevent than the previous one. The Meeting reaffirmed its earlier decisions and reconfirmed the production adjustment plan and the monthly production adjustment mechanism, as well as the decision to adjust upward the monthly overall production by 0.4 mln bbl / d for the month of November 2021, as per the attached schedule. Also, the Meeting again 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 December 2021. The next 21th OPEC+ meeting is scheduled for November 4, 2021.
Total production of oil worldwide resumed its growth in September 2021 after a short stop in the previous month and expanded by 543 thsd bbl / d relative to the level of August 2021, or +0.6% MoM. However, the production didn’t achieve its new post-pandemic maximum, although remained rather close to the prior one, recorded in July 2021. In annual terms, global oil production evidently demonstrated a solid growth within the month under review. Comparing to the level of September 2020, it ramped up by more than 5.3 mln bbl, or +5.8% YoY. Nevertheless, the global output still was approximately 5.0 mln bbl / d lower in September 2021 than it was before the start of the pandemic. But relative to the pandemic through, recorded in May-June of 2020, the production around the globe was higher in the month under consideration by almost 8.2 mln bbl / d, or +9.2%. In absolute terms, the most considerable expansion of its production of oil in the month under review was recorded in Russia. The output of this major non-OPEC producer ramped up in September 2021 by 292 thsd bbl / d relative to August 2021, or +2.7% MoM. It was the most considerable monthly growth of production in Russia for last 12 months, and moreover, the volume of the output also rose to its highest mark of nearly 11.0 mln bbl / d since April 2020. But in relative terms, the most material growth of oil output in September 2021 was observed in other Ex-USSR states as a whole, whose combined oil production widened by 124 thsd bbl / d, or +4.6% MoM. Brazil and Canada were another non-OPEC oil-producing states that increased their oil extraction materially in September 2021 as against the volumes of the previous month. Thus, the output of oil in Brazil ramped up during the month under consideration by 136 thsd bbl / d, or +3.2% MoM, while the production of oil in Canada went up in September 2021 by 105 thsd bbl / d in comparison with one month ago level, or +1.9% MoM. The main cutback of oil production on a single state level in September 2021 was recorded in the USA. The output in this major non-OPEC oil producer contracted by a sizeable amount of 462 thsd bbl / d in compare to the previous month, or -2.5% MoM.
According to the weekly US DOE data, the primary oil production, measured as the sum of crude oil output and NGLs production, collapsed in the USA in September 2021 by a sizeable amount of 937 thsd bbl / d in contrast to the month prior, or severe -5.6% MoM. The rate of monthly fall of the output was equal to -2.35 SD of monthly growth rates over the whole history of observations. The main reason behind so considerable crunch of the oil output in the USA within the month was bad weather conditions as hurricanes in the Gulf of Mexico forced US oil companies to shut their offshore sites and evacuate the staff. Recall that in August 2021 the primary oil production in the USA reached its highest mark over preceding 16 months. So, despite to such a poor monthly performance, the primary output remained rather elevated, considering the post-pandemic times, just slightly below the threshold of 16.0 mln bbl / d. That’s why on a year-over-year basis, the primary oil production in the USA still was higher in September 2021 than it was one year ago. Comparing to the level of September 2020, the production built up by 152 thsd bbl / d, or almost +1.0% YoY. On an annual basis, the output in the USA demonstrated a rise in the course of consequent 5 months.
Total shale oil output increased in the USA in September 2021 relative to August 2021, in contrast to the decline of the overall crude oil production, as the hurricanes didn’t affected major shale oil fields in the country. The monthly growth of the shale oil output was equal to 125 thsd bbl / d, or healthy +1.5% MoM. On a monthly basis, the output continued to grow for the 7th consequent month. So, the volume of the production climbed to its new maximal level since April 2020 of 8.41 mln bbl / d. As for a yearly basis, the production of shale oil in the USA evidently showed a more robust growth and expanded by 452 thsd bbl / d, or +5.7% YoY, the 5th month of expansion in annual terms in a row. Almost all major shale oil deposits in the USA increased their output in September 2021 on a monthly basis, along with the overall figure, while lesser fields, on the contrary, showed negative monthly dynamics. In absolute terms, the most material growth of the output in September 2021 was recorded on the largest US deposit, namely Permian. The output on the field increased by 54 thsd bbl / d relative to one months ago level, or +1.1% MoM. In relative terms, the most material rise of output among US shale oil fields within the month under review was observed on the field of Bakken. The output of shale oil on the deposit built up by 34 thsd bbl / d in contrast to the level of August 2021, or +2.9% MoM.
The International Energy Agency (IEA) didn’t release new quarterly data on demand for crude oil and petroleum product around the world. However, according to the most recent IEA monthly report, a reduction in the number of new COVID-19 cases and rising mobility are lending support to global oil demand. In particular, global gasoline demand is currently running 2% below its pre-COVID levels compared with a deficit of more than 10% at the start of the year. Air-travel is lagging further behind. Moreover, the ongoing energy crisis has prompted a switch to oil that could boost demand by 500 thsd bbl / d compared with normal conditions. All in all, this contributed to an upward revision to IEA’s global oil demand forecast for 2021 and 2022, by 170 thsd bbl / d and 210 thsd bbl / d respectively. Global oil demand is now forecast to rise by 5.5 mln bbl / d in 2021 and another 3.3 mln bbl / d in 2022, when it reaches 99.6 mln bbl / d, slightly above its pre-pandemic levels.
Total commercial stocks of crude oil and petroleum products in the OECD as a whole continued to decline in July 2021 on a monthly basis and fell by another 34.4 mln bbl in compare with the volume of June, or -1.2% MoM. The inventories dropped to their lowest level since July 2018 and, therefore, remained well below their pre-pandemic levels of early 2020. In annual terms, the volume of total commercial stocks of crude oil and petroleum products shrank in July 2021 by 371.4 mln bbl, or very serious -11.5% YoY. It was the steepest annual drop of the inventories in decades. According the preliminary IEA assessments, total crude oil and petroleum products stocks in the OECD as a whole proceeded to fall and drew by another 28 mln bbl in August 2021 to 2 824 mln bbl, 162 mb below pre-COVID five-year average. Early September 2021 data for the US, Europe and Japan show on-land industry oil stocks fell by a further 23 mln bbl to stand 210 mln bbl below their five-year average and at their lowest level since March 2015.
Total stockpiles of crude oil and petroleum products proceeded to narrow in the USA in September 2021 as well and contracted by another 19.3 mln bbl relative to the level of August 2021, or -2.4% MoM. As for a monthly basis, the inventories continued to go down in the USA during consequent 6 months and dropped within the month to their new minimum volume of 770.1 mln bbl over last 3 years. In annual terms, total inventories of crude oil and petroleum products in the USA again dropped considerably in July 2021. The decline relative to the level of July 2020 was equal to 123.3 mln bbl, or -13.8% YoY. The inventories continued to dry up in yearly terms for 6 months in a row. Recall that total inventories of crude oil and oil products in the USA reached its all-time high in May-June of 2020, when the volume of the stocks was equal to 964 mln bbl. Relative to that level the inventories in September 2021 were lower by nearly 194 mln bbl, or more than 20% less.
Crude oil inventories in the Cushing storage in Oklahoma (the basis for NYMEX WTI crude oil futures) continued its downward movement in September 2021 for the 11th consequent month, although the rate of decline decelerated greatly during recent 2 months. In September, the volume of the stocks again decreased by minor 0.5 mln bbl relative to August, or -1.5% MoM. Nevertheless, the volume of the stocks in Cushing sank by the end of the month to its new lowest level since October 2018 equal to 34.0 mln bbl and, therefore, remained well below the average level for this month of a year over last 5 years. On an annual basis, crude oil inventories in Cushing in September 2021 obviously showed a much deeper negative performance and crumbled by 22.1 mln bbl relative to one year ago level, or overwhelming -39.4% YoY. It has become the new deepest yearly drop of the inventories throughout previous 2 years. Also, September 2021 was the 6th month in a row of Cushing crude oil stocks depletion in yearly terms.
The volume of total floating inventories of crude oil around the globe continued to expand on a monthly basis in September 2021 for the 3rd month in a row and increased by another 2.2 mln bbl, or +2.5% MoM. The figure rose to its highest level over last 5 months. Moreover, the volume of the stocks remained well above the average level for the month of a year over last 5 years for the 2nd consequent month. However, global floating inventories of crude oil were much lower in September 2021 in annual terms. The drop was equal to 44.4 mln bbl, comparing to the level of September 2020, or -32.9% YoY. September was the 6th month of decline in yearly terms in a row. The larger half of regions in the Vortexa dataset experienced a growth of their crude oil floating stocks in September 2021, as compared to the volumes of August 2021, although the main gain was contributed by only two regions, namely the North Sea and West Africa.