The OPEC Reference Basket edged up 70¢ to settle slightly above $105/b in February, as cold weather, supply disruptions and geopolitical factors helped to push oil markets higher. The Nymex WTI front-month gained a hefty $5.82 to average $100.68/b and ICE Brent futures rose $1.72 to $108.84/b. The Brent-WTI spread narrowed sharply to $8.15/b.
World Economy
World economic growth for 2013 and 2014 remains at 2.9% and 3.5%, respectively. The 2014 forecast for the OECD is unchanged at 2.0%, compared to 1.3% in 2013. In contrast, China’s growth for 2014 has been revised down slightly to 7.6%, just below estimated 2013 growth of 7.7%. India’s forecast remains at 5.6% for 2014 and 4.7% for 2013. The ongoing trend of accelerating economic growth in the OECD amid a slowdown in emerging economies has been confirmed by the latest data.
World Oil Demand
World oil demand growth for 2013 was revised up by 70 tb/d to stand at 1.05 mb/d. Upward revisions were seen in OECD Americas and Europe, reflecting stronger-than- expected seasonal demand for 4Q13. Africa was also higher due to baseline effects. For 2014, global oil demand is seen rising by 1.14 mb/d, following an upward revision of 50 tb/d.
World Oil Supply
Non-OPEC oil supply is expected to increase by 1.31 mb/d in 2014, following estimated growth of 1.33 mb/d in 2013. Growth is seen mainly coming from the US, Canada, and Brazil, while Norway, UK and Mexico are seen declining. In February, OPEC crude production, according to secondary sources, averaged 30.12 mb/d, up 259 tb/d from a month ago.
Product Markets and Refining Operations
Product markets in the Atlantic Basin received support in February from re-opened gasoline arbitrage to the US East Coast, which allowed European margins to rebound sharply. In the US, refining margins weakened as the decline in middle distillates and fuel oil cracks offset gains in gasoline. In Asia, refinery margins recovered further as markets temporarily tightened due to refinery disruptions and the start of seasonal maintenance.
Tanker Market
Dirty tanker spot freight rates declined in February by an average of 39% from the previous month. The drop was mainly due to the start of the refinery maintenance season, surplus tonnage supply, improved weather conditions in the Turkish Straits, and lower tonnage demand. Clean tanker spot freight rates dropped on average by 6% in February.
Stock Movements
OECD commercial oil stocks continued to fall in January after a sizeable decline in 4Q13. Crude and products showed a deficit of 19 mb and 123 mb, respectively, compared to the five-year average. In February, US total commercial oil stocks increased, but remained 32.0 mb below the five-year average, with crude some 8.0 mb above the seasonal norm.
Balance of Supply and Demand
Demand for OPEC crude for 2013 and 2014 was revised up by 0.1 mb/d to stand at 30.0mb/d and 29.7mb/d, respectively. Compared to the previous year, demand for OPEC crude is expected to decline by 0.3 mb/d in 2014, following an estimated drop of 0.5 mb/d in 2013.