The OPEC Reference Basket (ORB) declined by around 21% to average $26.50/b in January.
Ongoing excess supply, the weakening Chinese economy and lower seasonal heating demand continued to weigh on the market. Crude oil futures prices also declined significantly, with ICE Brent down $6.98 to average $31.93/b and Nymex WTI losing $5.67 to average $31.66/b. The Brent-WTI spread narrowed to just 15¢/b.
World economic growth has been revised down to 2.9% for 2015 and 3.2% for 2016. OECD growth in 2016 has been revised lower to 2.0%, the same pace as in the previous year. In the emerging economies, China’s growth in 2016 has been revised down slightly to 6.3% while India’s growth has been revised lower to 7.5%. Meanwhile, increasing difficulties in both Brazil and Russia are seen pushing both economies into recession for the second consecutive year.
World Oil Demand
World oil demand growth in 2015 is expected to increase by 1.54 mb/d, unchanged from the previous report, to average 92.96 mb/d. In 2016, world oil demand is expected to grow by 1.25 mb/d, representing a marginal lower adjustment of 10 tb/d from the previous forecast, to average 94.21 mb/d. Non-OECD countries will continue to contribute the bulk of oil demand growth this year.
World Oil Supply
Non-OPEC oil supply growth in 2015 has been revised up by 90 tb/d to 1.32 mb/d, mostly driven by higher-than-expected fourth quarter data. In 2016, non-OPEC oil supply is projected to decline by 0.70 mb/d, following a downward revision of 40 tb/d, mainly due to announced capex cuts by international oil companies, the fall in active drilling rigs in the US and Canada, and a heavy annual decline in older fields. OPEC NGL production is expected to grow by 0.17 mb/d in 2016, up from 0.15 mb/d last year. In January, OPEC crude production increased by 131 tb/d to average 32.33 mb/d, according to secondary sources.
Product Markets and Refining Operations
US refinery margins remained weak, weighed down by the poor performance of the middle distillate market, despite a temporary boost in heating fuel demand from snow storms on the US East Coast. In Europe and Asia, refinery margins edged higher on the recovery seen at the bottom of the barrel due to stronger regional demand.
Dirty tanker fright rates rose on average in January, supported by higher Suezmax rates on the back of strong tonnage demand and delays in the Turkish straits. Both VLCC and Aframax rates, however, saw declines. In the clean tanker market, freight rates showed significant gains over the previous month, both East and West of Suez, on the back of steady demand.
OECD commercial oil stocks fell in December to stand at 2,974 mb. At this level, inventories are around 310 mb higher than the latest five-year average. Crude and products showed surpluses of about 249 mb and 61 mb, respectively. In terms of forward cover, OECD commercial stocks stood at 63.7 days in December, unchanged from the previous month and some 6.1 days higher than the latest five-year average.
Balance of Supply and Demand
Demand for OPEC crude in 2015 is estimated to average 29.8 mb/d, representing an increase of 0.1 mb/d over the previous year and lower by 0.1 mb/d compared to the previous report. The global oversupply for 2015 is estimated at 2.0 mb/d. In 2016, demand for OPEC crude is expected at 31.6 mb/d, a gain of 1.8 mb/d, higher than last year.