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Oil Market Report Summary (15 June 2022)

Core Content

This report outlines the state of the global oil market, focusing on demand, supply, refining capacity, and oil prices. It highlights the impact of economic conditions, geopolitical tensions, and policy decisions on the sector.

Main Points

Global Demand

• 2023 Forecast: World oil demand is expected to reach 101.6 mb/d, surpassing pre-pandemic levels.
• China's Impact: China is set to drive demand growth in 2023, with an increase of 2.2 mb/d, offsetting a slowdown in OECD countries.
• OECD vs Non-OECD: Non-OECD economies will account for nearly 80% of demand growth in 2023. OECD demand is forecast to rise by 1.3 mb/d in 2023, but at a slower rate due to economic headwinds and higher prices.
• Product Trends: Jet fuel and kerosene demand are expected to grow significantly, while gasoline and diesel demand may face headwinds due to high prices and shifting consumer behavior.

Supply Outlook

• Non-OPEC+ Growth: Non-OPEC+ is expected to lead supply growth, adding 1.9 mb/d in 2022 and 1.8 mb/d in 2023.
• OPEC+ Production: OPEC+ production may decline in 2023 due to sanctions on Russia and reduced output from non-Middle Eastern producers. Libya's recovery could help increase production, but spare capacity is expected to shrink to historic lows.
• Supply Constraints: Global oil supply may struggle to keep pace with demand, particularly due to the impact of sanctions and reduced output in key regions.

Refining Capacity

• Capacity Expansion: Global refining capacity is set to expand by 1 mb/d in 2022 and 1.6 mb/d in 2023, boosting throughputs.
• Product Market Tightness: Despite increased capacity, product markets remain tight, especially for diesel and kerosene. OECD middle distillates stocks have fallen to their lowest levels since 2004.
• Regional Developments: Refinery activity is expected to recover in the second half of 2022, with a 3.5 mb/d increase in runs from May through August. New start-ups in Africa, the Middle East, and Asia are expected to support growth in 2023.

Inventory Trends

• Global Inventories: Oil inventories rose by 77 mb in April and continued to build in May, but remain 290.3 mb below the 2017-2021 average.
• OECD Stocks: OECD industry stocks increased by 42.5 mb in April, supported by government releases. Preliminary May data shows further gains, but inventories are still below historical levels.

Price Movements

• Crude Oil Prices: WTI and Brent futures have averaged over $120/bbl since 6 June, with North Sea Dated hitting $127.9/bbl on 13 June.
• Product Prices: Diesel and kerosene prices remain elevated due to tight supply and high demand. Forward product cracks have also increased, indicating structural supply shortages.
• Economic Impact: High prices and macroeconomic factors are expected to moderate demand growth, especially in OECD countries, with gasoline and diesel demand showing signs of decline.

Key Information

Demand Growth

• 2022: Global oil demand is forecast to increase by 1.8 mb/d.
• 2023: Demand growth is projected to be 2.2 mb/d, driven by China's recovery and non-OECD expansion.
• OECD Demand: OECD demand is expected to rise by 1.3 mb/d in 2023, with gasoline and diesel demand showing declines.
• Non-OECD Demand: Non-OECD demand is forecast to grow by 1.7 mb/d in 2023, with China expected to recover significantly.

Supply Growth

• Non-OPEC+: Non-OPEC+ is projected to add 1.9 mb/d in 2022 and 1.8 mb/d in 2023.
• OPEC+: OPEC+ production may decline in 2023, with spare capacity potentially dropping to 1.5 mb/d.

Refining and Cracks

• Refinery Capacity: Global refining capacity is expected to expand by 1.6 mb/d in 2023, but product markets remain tight.
• Crack Spreads: Diesel cracks eased in May, but jet fuel and gasoline cracks surged due to seasonal demand increases.

Inventory and Policy

• OECD Inventory: OECD industry stocks increased by 42.5 mb in April, with further gains in May.
• Government Releases: Strategic Petroleum Reserve (SPR) releases in OECD countries have helped reverse inventory declines.

Regional Analysis

• Americas: Jet fuel and fuel oil are expected to support demand growth, while road fuel demand weakens.
• Europe: Jet fuel demand is expected to grow, but road fuel consumption declines due to high prices and economic uncertainty.
• Asia/Pacific: Jet fuel is a key driver of demand growth, but the region faces economic uncertainty due to China's lockdowns and weaker local currencies.

Uncertainties

• China's Recovery: The pace of China's economic recovery and easing of lockdowns remains uncertain.
• Sanctions Impact: Continued sanctions on Russia may further reduce supply and affect global market balance.
• Economic Conditions: Rising interest rates, a stronger US dollar, and economic slowdowns pose risks to demand growth in OECD countries.