Crude oil futures prices extended their gains in March, with both ICE Brent and NYMEX WTI up $2.60 and $3.19 m-o-m, respectively, to their highest level since last October, supported by improving fundamentals as well as uncertainties about the supply outlook from several regions due to geopolitical factors. The oil demand in Middle East is set to grow, according to OPEC Monthly Oil Market Report-April 2019

WORLD OIL SUPPLY

Non-OPEC oil supply growth in 2018 was revised upward by 0.16 mb/d from the previous month’s report and is now estimated at 2.90 mb/d to average 62.37 mb/d. The adjustment was mainly due to upward revisions in the UK, Brazil and China. The main drivers of growth for the year were the US with 2.26 mb/d, along with Canada, Russia, the UK, Kazakhstan, and Qatar. Meanwhile Mexico, Norway and Vietnam are estimated to have seen the largest declines. In contrast, non-OPEC oil supply growth in 2019 was revised downward by 0.06 mb/d to average 2.18 mb/d, mainly due to extended maintenance in Kazakhstan, Brazil and Canada, which was partially offset by upward revisions to the US and Russia. Total non-OPEC supply in 2019 is now forecast to average 64.54 mb/d, with the US, Brazil, the UK, Australia and Ghana being the major contributors to growth, while Mexico, Kazakhstan, Norway, Indonesia and Vietnam are projected to see the largest declines. OPEC NGLs and non-conventional liquids are estimated to have grown by 0.04 mb/d in 2018, unchanged from the previous estimate, to average 4.98 mb/d, and are forecast to grow by 0.09 mb/d in 2019 to average 5.07 mb/d. In March 2019, OPEC crude oil production decreased by 534 tb/d to average 30.02 mb/d, according to secondary sources.

CRUDE OIL PRICE MOVEMENTS

In March 2019, the OPEC Reference Basket (ORB) rose by $2.54, or 4.0%, month-on-month (m-o-m), settling at $66.37/b, amid strengthening oil market fundamentals and improving market sentiment, which were supported by the commitment of OPEC and participating non-OPEC countries to restore global oil market stability. Crude oil futures prices extended gains in March, with both ICE Brent and NYMEX WTI reaching their highest since last October, amid uncertainties about the supply outlook from several regions.

ICE Brent averaged a m-o-m rise of $2.60, or 4.0%, to $67.03/b, while NYMEX WTI rose $3.19, or 5.8%, m-o-m to $58.17/b. However, year-to-date (y-t-d), ICE Brent was $3.40, or 5.1% lower, at $63.83/b, and NYMEX WTI was $7.99, or 12.7%, lower at $54.90/b. The ICE Brent price structure flipped into backwardation, the NYMEX WTI price structure remained in steep contango, while DME Oman continued to see significant backwardation. Hedge funds and other money managers further raised their bullish positions in both ICE Brent and NYMEX WTI, reaching the highest level since October 2018.

THE OIL FUTURES MARKET

Crude oil futures prices extended their gains in March, with both ICE Brent and NYMEX WTI up $2.60 and $3.19 m-o-m, respectively, to their highest level since last October, supported by improving fundamentals as well as uncertainties about the supply outlook from several regions due to geopolitical factors. The NYMEX WTI front month strengthened further to reach more than $60/b in late March, after Baker Hughes data showed that the US drilling rig count continued to decline for six consecutive weeks to reach 816, for the week ending March 29, their lowest level in nearly a year. Likewise, the US Energy Information Administration showed that US crude production decreased in January to 11.87 mb/d, or a decline of 90 tb/d m-o-m. Moreover, US crude stocks have continued to fall over the month, bringing the cumulative US crude stock draw in March to around 10 mb in the week ending 22 March. Oil prices were underpinned likewise by healthy global oil demand that would strengthen in 2Q19 and expectations of higher refiners’ crude intakes in coming months to meet summer requirements. Support also came from higher investor confidence and optimism over the effectiveness of the production adjustments in restoring global oil market balance, as OPEC and non-OPEC participating countries continued to show high conformity with their voluntary production adjustments. However, disappointing macroeconomic data coming from major economies, and concerns about slowing global economic outlook that could hit oil demand amid continuing trade negotiations between China and the US, weighed on oil prices.

MIDDLE EAST

SAUDI ARABIA

In Saudi Arabia, oil demand continued to increase for the second consecutive month, rising by 0.22 mb/d or more than 12% for the month of February, compared with February 2018. Total oil consumption for the same period stood at 2.16 mb/d. Most growth originated in power generation and transportation fuels, with fuel oil increasing by around 0.24 mb/d and gasoline and jet/kerosene adding around 0.06 mb/d and 0.01 mb/d, respectively. Demand for fuel oil in the power generation sector received support from the replacement of crude oil for the purpose of burning, which declined by 0.08 mb/d y-o-y, as well as a low baseline of comparison. For the other products, transportation fuels witnessed healthy gains, while diesel fuel performance was subdued in light of slower construction activities.

Gasoline and jet/kerosene increased y-o-y by 10% and 13%, respectively, due to a low baseline of comparison and a slight pickup in the aviation sector. Expectations for oil consumption in the Kingdom will slightly rise for most of the year, with a minor uptick during the summer air conditioning season.

IRAQ

Oil demand in Iraq increased in February 2019, with most products recording steady gains, apart from fuel oil, which declined by more than 0.05 mb/d y-o-y.

OTHER COUNTRIES IN THE MIDDLE EAST

Among other countries in the region, UAE registered healthy gains during January of around 0.05 mb/d, while oil demand in IR Iran declined by around 0.01 mb/d y-o-y in January.

The outlook for 2019 Middle East oil demand depends very much on overall economic levels and government spending plans, with risks currently balanced. As highlighted in the previous MOMR, projections for oil demand in 2019 remain highly dependent on economic performance and overall reform plans of major oil producing countries in the region, in addition to the impact of substitution programmes in a number of countries. In 2018, Middle East oil demand weakened by 0.08 mb/d compared with 2017. In 2019, it is projected to grow by 0.04 mb/d.