Fundamentals is our monthly review of global oil data, this is the February edition
The tone of macroeconomic data released in recent weeks has been mixed, after the improvements seen around the turn of the year. Some indicators remain positive, particularly those relating to economic sentiment, but these have been somewhat balanced by releases that have surprised to the downside against market expectations. There are still plenty of signals that the global economy is improving, but it is also clear that there may be setbacks along the way and that countries will not all recover at similar rates.
Our preliminary estimates for January point to a m/m deceleration in global oil demand to just under 90 mb/d (compared to 92 mb/d in December) and to demand growth of 0.8 mb/d, after allowing for revisions to preliminary US oil demand and for Chinese stockpiling. OECD demand indications, particularly from the Pacific, have weakened, as support from the cold weather dissipates. The strength in Middle Eastern demand, too, remains muted, given the colder temperatures, while Chinese demand slowed down ahead of the New Year festivities and was adversely impacted by severe cold weather, with apparent consumption figures bloated by stockpiling. Thus, although underlying demand is on an improving trajectory, with y/y growth firmly in positive territory, growth rates have slowed from Q4 and we do not expect a pick-up until Q2, after the Chinese New Year and with the seasonal pick up in non-OECD summer demand.
Further impacting crude balances is the start of hefty refinery maintenance, particularly in the OECD. Coming from record high runs of 77 mb/d in December, global refinery runs eased to 75.5 mb/d in January and are set to fall further to around 74 mb/d by April. Although throughput is set to fall q/q by 1 mb/d, runs are still set to be higher y/y in Q1 13, due to significant capacity additions, particularly in Asia, and higher runs and utilisation rates in the US, as US refineries exploit cheap dislocated crude prices and a strong Latin American product export market.
Moreover, better end product demand relative to this time last year and closures of refineries in Europe provided further support to product prices. Meanwhile, gasoil prices received a boost from the cold weather and gasoline from the lack of appropriate blending components. Together with hefty refinery maintenance, this helped boost margins and product prices through January and most of February, notwithstanding the recent correction, while it has weighed on the physical crude market, weighing on physical grades and time spreads.
While crude demand has fallen seasonally, crude supplies have tightened, with both non-OPEC production and OPEC output down m/m in January. The former was impacted by growing shortfalls from the North Sea, cyclone-hit Australia, weather-related outages in Canada and continued problems in the Middle East (Yemen, Syria and Sudan/South Sudan). More interestingly, OPEC production fell further due to Saudi Arabia keeping a lid on supplies as domestic demand remained muted and high OSPs cost them market share in the export market; shortfalls in northern Iraq and Libya and a pullback in Iranian exports, down m/m by over 0.3 mb/d. Thus, problems on the supply side are likely to keep seasonal crude stock builds to a minimum in Q1, potentially posing upside risk for spreads once refineries return from maintenance.