The OPEC Monthly Oil Market Report (MOMR) for February 2023 released Tuesday provides OPEC’s outlook for crude oil market developments for the coming year with key developments impacting oil market trends in world oil demand and supply. Late last year OPEC+ decreased crude oil production by 2mbpd. OPEC left its key forecasts for 2023 oil supply and demand unchanged for the second month in a row. OPEC reiterated uncertainties around global economic growth and the outlook for Russian oil production.
MOMR Highlights
- OPEC sees demand up 2.32m bpd this year, up 100k bpd from last month’s report
- Sees non-OPEC supply growing 1.4m bpd vs +1.5m bpd prior
- Says Jan OPEC output fell 49k bpd in January to 28.88m bpd
- Sees World economic growth rising to 2.6% vs 2.5%
- Sees China’s oil demand to rise by 590k in 2023
OPEC Monthly Oil Market Report February 2023
Review of global oil demand trend
Key to oil demand growth in 2023 will be the return of China from its mandated mobility restrictions and
Graph 2: Global oil demand growth by product, y-o-y the effect this will have on the country, the region and the world.
Crude Oil Price Movements
The OPEC Reference Basket (ORB) crude rose $1.94, or 2.4%, m-o-m in January to average $81.62/b. The ICE Brent front-month increased by $2.57, or 3.2%, to average $83.91/b, and NYMEX WTI rose by $1.64, or 2.1%, to average $78.16/b. The Brent/WTI futures spread widened m-o-m, rising by 93¢ to average $5.75/b. The market structure of ICE Brent strengthened in January, and the first-to-third month spread flipped into backwardation. However, the forward curve of NYMEX WTI weakened further, and the first-to-third month spread moved into deeper contango. Hedge funds and other money managers raised their combined futures and options net long positions in January in both ICE Brent and NYMEX WTI, compared to December’s low levels.
World Economy
The world economic growth forecast for 2022 is revised up slightly to 3.1%, given the better-than-anticipated 2H22 economic performance in various key economies. The 2023 global economic growth forecast is also revised up slightly to 2.6% with some of the 2H22 momentum carrying over into 2023. For the US, the economic growth forecast is revised up to 2.1% for 2022 and 1.2% for 2023. Similarly, the Euro-zone’s economic growth is revised up to 3.5% for 2022 and 0.8% for 2023. Japan’s economic growth forecast remains at 1.2% for 2022, but is revised up to 1.2% for 2023.
China’s economic growth forecast for 2022 is revised down to 3%, but is revised up to 5.2% for 2023. India’s economic growth forecast remains unchanged at 6.8% for 2022 and 5.6% for 2023. Brazil’s economic growth forecast remains at 2.8% for 2022 and is also unchanged at 1% for 2023.
The 2022 economic growth forecast for Russia is revised up to a contraction of 3.5%, followed by a small contraction of 0.5% in 2023, unchanged from last month. While principally the current economic momentum provides a good base for this year’s growth, a slowing dynamic for the year is still likely with inflation remaining high and further lifts in key interest rates, particularly in the Euro-zone. The world economy will continue to navigate through numerous challenges including high sovereign debt levels in many regions and geopolitical developments.
World Oil Demand
The world oil demand growth forecast for 2022 remains unchanged from last month’s assessment at 2.5 mb/d. The OECD demand in 4Q22 was adjusted downward to reflect the latest data but non-OECD demand in 4Q22 was revised higher due to improvements in economic activity in some countries and a slight recovery in oil demand in China after the lifting of its zero-COVID-19 policy. For 2023, world oil demand growth is adjusted slightly upwards by 0.1 mb/d to stand at 2.3 mb/d. The OECD is projected to grow by around 0.4 mb/d and non-OECD at about 2.0 mb/d.
World Oil Supply
Non-OPEC liquids supply is estimated to have grown by 1.9 mb/d in 2022, broadly unchanged from the previous assessment. Downward revisions to Other Eurasia, OECD Europe and Other Asia were largely offset by upward revisions to liquids production in Russia. The main drivers of liquids supply growth for 2022 are seen to be the US, Russia, Canada, Guyana, China and Brazil, while the largest declines are expected from Norway and Thailand. For 2023, non-OPEC liquids production growth is revised slightly down by 0.1 mb/d from last month and is forecast to grow by 1.4 mb/d.
The main drivers of liquids supply growth are expected to be the US, Norway, Brazil, Canada, Kazakhstan and Guyana, while declines are forecast in Russia and Mexico. Nevertheless, large uncertainties remain over the impact of ongoing geopolitical developments, as well as US shale output in 2023. OPEC NGLs and non-conventional liquids are forecast to grow by 0.1 mb/d in 2022 to average 5.39 mb/d and by 50 tb/d to average 5.44 mb/d in 2023. OPEC-13 crude oil production in January decreased by 49 tb/d m-o-m to average 28.88 mb/d, according to available secondary sources.
Product Markets and Refining Operations
Refinery margins reversed trends in January and strengthened substantially in all main trading hubs, with sizeable margin gains registered, particularly in the Atlantic Basin, backed by a firm recovery in gasoline’s performance. In the US, a drop in jet/kerosene inventories drove up that products’ crack spread, to become the largest margin contributor across the barrel, followed by gasoline. In Europe, robust gasoline exports to the US, amid stronger product buying interest within the region ahead of the 5th of February sanctions on Russian products, supported the products market, particularly at the top section of the barrel. In Asia, the recent lifting of COVID-19 restrictions in China, the boost in transport activity around the Chinese Lunar New Year holidays, the improvement in petrochemical activities and unplanned refinery outages in the country have all contributed to significant support for Asian naphtha and gasoline markets despite losses at the bottom of the barrel.
Tanker Market
Dirty freight rates continued the previous month’s decline in January, with m-o-m losses across all monitored routes. Rates slipped from elevated levels, after having been being pushed higher in previous months amid concerns about potential disruptions due to sanctions on Russian crude. However, the upward pressure eased as crude trade flows have largely adjusted ahead of the implementation of sanctions and as Russian crude was seen trading below price cap levels.
VLCCs rates on the Middle East-to-East route declined 36% m-o-m in January, while Suezmax rates on the US Gulf-to-Europe route dropped 37% over the same period. Aframax rates on the Indonesia-to-East route gave up the gains seen in the previous month, declining 19%. Clean rates fell for the first time since October, down 42% East of Suez and 52% West of Suez. Some of the downward pressure was due to many ship owners choosing to forego carrying Russian cargos ahead of sanctions, limiting demand for their tankers.
Crude and Refined Products Trade
Preliminary data shows US crude imports hitting a three-year high in January, averaging 6.6 mb/d. US crude exports fell back to 3.6 mb/d in January, after remaining around 4 mb/d over the previous three months. Japan’s crude imports hit a five-month high in December, averaging just under 3.0 mb/d. Japan’s product imports, including LPG, recorded an 11-month high in December, driven by inflows of heating fuel. China’s crude imports were steady in December, averaging 11.4 mb/d. China’s import of Russian crude remained broadly unchanged, while strong m-o-m increases were seen from Malaysia, the United Arab Emirates (UAE) and Iraq.
Product exports from China strengthened further in December to reach the highest since April 2020, with gasoline, gasoil and jet fuel outflows increasing sharply. India’s crude imports were broadly stable m-o-m in December, averaging 4.6 mb/d. India’s product imports continued to edge higher in December to stand at a 22-month high of 1.2 mb/d, as a jump in fuel oil inflows outweighed declines in gasoline and LPG. India’s product exports surged 31% m-o-m to a nine-month high, with gains seen across the barrel. Estimates show OECD crude imports broadly stable y-o-y in January, despite a sharp drop in pipeline flows, while refined product exports were higher over the same period.
Commercial Stock Movements
Preliminary December data sees total OECD commercial oil stocks down 10.9 mb from the previous month. At 2,768 mb, inventories were 117 mb higher than the same month a year ago, 95 mb lower than the latest five-year average and 158 mb below the 2015–2019 average. Within the components, crude stocks rose by 5.2 mb, while product stocks fell m-o-m by 16.2 mb. At 1,344 mb, OECD crude stocks were 72 mb higher than the same time a year ago, but 36 mb lower than the latest five-year average and 83 mb lower than the 2015–2019 average.
OECD product stocks stood at 1,424 mb, representing a surplus of 45 mb from the same time in the previous year, but 59 mb lower than the latest five-year average and 75 mb below the 2015–2019 average. In terms of days of forward cover, OECD commercial stocks rose m-o-m by 0.3 day in December to stand at 60.1 days. This is 2.2 days above levels seen in the same month last year, but 2.5 days less than the latest five-year average and 2.3 days lower than the 2015–2019 average.
Balance of Supply and Demand
Demand for OPEC crude in 2022 remains unchanged from the previous month’s assessment to stand at 28.6 mb/d. This is around 0.5 mb/d higher than in 2021. Demand for OPEC crude in 2023 is revised up by 0.2 mb/d from the previous assessment to stand at 29.4 mb/d, which is 0.8 mb/d higher than in 2022.
Source: OPEC News Release 14 February 2023
From The Traders Community News Desk