Middle East oil demand growth is expected to be challenged by many aspects, mostly related to geopolitical issues and economic transformation policies, including subsidy reduction programmes. Transportation fuels, particularly gasoline, and industrial fuels, predominantly diesel and residual fuel oil, are projected to play a significant part in the total oil demand growth of the region. Oil demand growth in the Middle East is anticipated to increase by 0.07 mb/d in 2020, according to OPEC Monthly Oil Market Report-December 2019

WORLD OIL SUPPLY

Non-OPEC oil supply growth forecast for 2019 remains at 1.82 mb/d, unchanged from last month’s report. The US liquids supply growth also remains unchanged at 1.62 mb/d, an upward revision in 3Q19 is now offset by a lower estimate for 4Q19. Similarly, the non-OPEC oil supply growth forecast for 2020 remains unchanged from last month’s forecast at 2.17 mb/d. An upward revision in the UK’s oil supply forecast is offset by a downward revision in Russia. The 2020 non-OPEC supply forecast remains subject to some uncertainties, including the degree of spending discipline by US independent oil companies. For 2019, the US, Brazil and Canada remain to be the key drivers for growth, and this will continue in 2020 with the addition of Norway. OPEC NGLs production in 2019 is estimated to have grown by 0.04 mb/d to average 4.80 mb/d and in 2020 is forecast to grow to average 4.83 mb/d. In November, OPEC crude oil production dropped by 193 tb/d m-o-m to average 29.55 mb/d, according to secondary sources.

CRUDE OIL PRICE MOVEMENTS

The OPEC Reference Basket (ORB) price rose by $3.03, or 5.1%, month-on-month (m-o-m) in November settling at $62.94/b. In November, ICE Brent averaged $3.08, or 5.2%, higher m-o-m at $62.71/b, while NYMEX WTI rose by $3.06, or 5.7%, m-o-m averaging $57.07/b. Year-to-date (y-t-d), ICE Brent averaged $8.79, or 12.1%, lower at $64.08/b, while NYMEX WTI declined by $9.48, or 14.3%, to $56.79/b, both compared to the same period a year earlier. The backwardation price structures of both ICE Brent and DME Oman steepened further in November, particularly in prompt forward months, while the NYMEX WTI market structure slipped into backwardation for most of the month. Hedge funds and other money managers raised their speculative net long positions, reflecting a more positive outlook for the global oil market.

WORLD ECONOMY

The global economic growth forecast remains unchanged at 3.0% for both 2019 and 2020. Some stabilisation of the global economic downward slope has been confirmed in recent weeks, but other issues, predominately US-related trade uncertainties – particularly within the US-China trade nucleus – remain. This may further negatively impact especially these two economies. The slowdown in India has also continued, as confirmed by 3Q19 GDP growth. Positively, some encouraging developments have recently become apparent in global trade. Potential progress in the ratification of the US Mexico Canada trade agreement in the US Congress, as well as general agreement on the Regional Comprehensive Economic Partnership, the EU-Mercosur trade deal and progress on other bilateral and multilateral agreements are all expected to lead to some recovery in global trade. Furthermore, better-than-expected 3Q19 growth in Brazil and Russia has led to upward revisions. Additionally, the announcement of fiscal stimulus in Japan will likely slightly raise growth in 2020. A tender rebound in global manufacturing activity may also provide support to growth in 2020. At the same time, monetary policies remain accommodative and supportive to global economic development. Finally, a decision by OPEC and non-OPEC participating countries in the Declaration of Cooperation last week to continue striving for a stable and balanced oil market will play an important role in maintaining healthy global economic growth.

OECD growth remains at 1.6% for 2019 and 1.4% for 2020. The 2019 US economic growth forecast remains at 2.3%, while the ongoing slowdown, in combination with continued trade restrictions, has led to the expectation that 2020 US GDP growth will remain unchanged at 1.8%. Euro-zone growth remains the same at 1.2% for 2019 amid confirmation of slowing 2H19 growth carrying over into the coming year. The 2020 forecast also remains unchanged at 1.0%. Japan’s 2019 growth forecast remains at 0.9%, while recently announced fiscal stimulus measures are forecast to cushion the 2020 deceleration. The 2020 economic growth forecast has been lifted from 0.3% to 0.6%. The UK’s 2019 forecast remains at 1.1% for 2019 and 1.0% in 2020. However, the outcome of the upcoming election and subsequent Brexit dealings will define the economic outcome of 2020 to a large extent.

In the emerging economies, China’s 2019 growth forecast remains at 6.2%. Growth in 2020 remains at 5.9%, with the economy expected to experience a further slowdown, predominantly due to the US-China trade dispute, while ongoing negotiations will need to be carefully monitored. India’s growth numbers were revised down considerably, given the ongoing challenges that were confirmed in weaker-than-expected 3Q19 GDP figures. India’s 2019 GDP growth is now forecast at 5.5%, compared with 6.1% the previous month and is forecast to accelerate to 6.4% in 2020, compared with 6.7% the previous month. After better-than-expected 3Q19 GDP growth, forecasts for Brazil and Russia were lifted to 1.0% and to 1.1% for 2019 and to 1.7% and 1.3% for 2020, respectively.

WORLD OIL DEMAND

Global oil demand in 2019 is now anticipated to rise by 0.98 mb/d, unchanged from the previous month’s report. Total global oil consumption is expected to average 99.80 mb/d. In the OECD, oil demand growth was left unchanged as compared to last month’s MOMR with OECD Americas projected to lead growth in 2019 as the ramping-up of production in ethane crackers should provide solid support to demand for NGLs/LPG. On the other hand, OECD Europe and Asia Pacific are projected to decline y-o-y in line with slower-than-expected industrial activity and significant petrochemical plant turnarounds. In the non-OECD region, oil demand growth was kept in line with last month’s projections. China is anticipated to lead demand growth globally in 2019, rising by 0.35 mb/d, followed by Other Asia, which is expected to add 0.30 mb/d y-o-y. Additionally, oil demand growth in Latin America and the Middle East is projected to improve from 2018 levels to increase by 0.04 mb/d and 0.06 mb/d y-o-y, respectively.

World oil demand in 2020 is anticipated to increase by 1.08 mb/d to average 100.88 mb/d, also untouched as compared to last month’s MOMR. In the OECD region, oil demand is projected to increase by 0.07 mb/d, with OECD Americas being in positive territory, driven largely by steady light distillate demand. In the non-OECD region, growth is anticipated to be around 1.01 mb/d with Other Asia regaining its leading position in terms of oil demand growth, followed by China. Higher oil requirements in other regions such as Latin America and the Middle East are also projected in 2020 as compared to the current year.

THE OIL FUTURES MARKET

ICE Brent and NYMEX WTI crude oil futures rebounded in November to settle at their highest level since last July, on a monthly basis, mainly driven by optimism and positive expectations for a trade agreement between the US and China, as well as an improved outlook for global oil demand amid better-than-expected economic indicators in some major economies. Oil prices rose further on strong performances in equity markets following signs of progress in trade negotiations that raised optimism over the global economy. Oil markets were also supported by the continuing production adjustments from OPEC and Non-OPEC countries participating in the ‘Declaration of Cooperation’, with strong conformity levels that contribute to balancing the global oil market.

Nonetheless, the oil price rally was limited by rising US oil supply and swelling crude oil stocks in the US, which continued to increase for five consecutive weeks, to the week of 22 November, adding about 19 mb, to reach the highest level since July, according to EIA data.

In November, ICE Brent was on average $3.08, or 5.2%, m-o-m higher at $62.71/b, and NYMEX WTI rose m-o-m by $3.06, or 5.7%, to average $57.07/b. Y-t-d, ICE Brent was $8.79, or 12.1%, lower at $64.08/b, while NYMEX WTI declined by $9.48, or 14.3%, to $56.79/b, compared with the same period a year earlier.

DME Oman crude oil futures prices also increased in November on robust seasonal demand from Asia Pacific and tight supply of medium sour crude from several regions. However, the value of the DME Oman prompt month rose less than ICE Brent and NYMEX WTI as weakening HSFO margins and a widening spread between low- and high-sulphur products ahead of the IMO 2020 weighed on sour crude values. DME Oman crude oil futures prices rose m-o-m by $2.79, or 4.6%, in November to settle at $63.05/b. Y-t-d, DME Oman was down by $7.16, or 10.1%, at $63.83/b, compared to the same period a year earlier. On December 10, ICE Brent stood at $64.34/b and NYMEX WTI at $59.24/b.

MIDDLE EAST

SAUDI ARABIA

In the Middle East, oil demand requirements registered solid gains during the month of October with oil demand in Saudi Arabia increasing sharply for the fourth straight month. Oil demand has now improved in six out of ten months in 2019 in Saudi Arabia, impacting total Middle East oil demand positively, mainly in 2H19. The improvement in oil requirements in Saudi Arabia stems primarily from continued increases in the consumption of industrial fuels direct crude for burning and diesel.

Looking at the product mix, in addition to industrial fuels, jet/kerosene and gasoline were also in the positive, while residual fuel oil declined y-o-y. Direct crude for burning and diesel were supported by additional power generation consumption and a progressing construction sector as the recovering economy was encouraged by the low base line of comparison during the same month last year.

In cumulative terms, with data up to October, oil demand in Saudi Arabia has increased, only to reach a growth level of around 0.04 mb/d as compared to the same period in 2018. The improvement in power generation and desalination plant fuels led to a decent increase in the overall consumption of the country. However, this level of growth remains lower than the historical oil demand growth average of around 0.12 tb/d seen in the periods prior to 2016. Replacing direct crude for power generation with natural gas in addition to the economic reforms within the country have contributed to the slower-than-expected oil demand picture over the recent past.

IRAQ

In October 2019, oil demand growth in Iraq flipped into positive territory after six months of declines, as data indicated a steady increase of around 0.03 mb/d from the levels seen in October 2018.

Total product consumption is assumed at 0.76 mb/d. All product categories saw positive performances apart from residual fuel oil, which declined mainly as a result of displacement with other fuels. Residual fuel oil dropped by 0.05 mb/d y-o-y.

OTHER COUNTRIES IN THE REGION

Oil demand increased in Kuwait, particularly in relation to petrochemical feedstock as well as transportation fuels. Oil demand increased by a solid 0.13 mb/d in September 2019, as compared to the same month in 2018.

A similar trend was observed in the UAE, where gains were recorded across the barrel.

For the rest of 2019 and 2020, Middle East oil demand growth is expected to be challenged by many aspects, mostly related to geopolitical issues and economic transformation policies, including subsidy reduction programs. Oil demand is anticipated to rise in Saudi Arabia, Iraq, the UAE and Kuwait in 2020. Transportation fuels, particularly gasoline, and industrial fuels, predominantly diesel and residual fuel oil, are projected to play a significant part in the total oil demand growth of the region. Oil demand growth in the Middle East is anticipated to increase by 0.06 mb/d in 2019 and by 0.07 mb/d in 2020.