Fundamentals is our monthly review of global oil data, this is the May edition
Peak refinery maintenance and a slight improvement in OPEC output meant that crude stocks built substantially in the OECD while China put large volumes of crude in their SPR, although that should really be counted as one-off demand as the crude is not available to the market. Product stocks, meanwhile, fell in the non-OECD but built in the OECD led by restocking of very low propane stocks in the US.
Overall, OECD stocks increased by over 50 mb, while non-OECD by nearly 45 mb, of which 39 mb headed into Chinese SPR. May and June should see crude stocks carry on rising as refinery maintenance continues on the USGC and in Asia but with demand picking up seasonally, product stocks should decline.
With demand in March coming in higher than expected, stockbuilds in Q1 14 due to a warm winter outside North America have become shallower at less than 0.1 mb/d, compared to estimates of 0.3 mb/d. Q2 14 is set to see builds of 0.3 mb/d, with the rate of builds from peak refinery turnarounds tempered by earlier than usual field maintenance in Norway and parts of the FSU and continued outages in OPEC nations of Libya, Nigeria, Angola and northern Iraq.
Given that OECD stocks remain nearly 80 mb below seasonal averages and the bulk of the non-OECD stockbuilds has been for baseline commercial and SPR storage, i.e. not commercial inventories, stockbuilds in Q2 14 will not be sufficient to bring the market to an even keel. Thus, the market heads into Q3 14, when the call on OPEC crude rises to 31 mb/d, still without ample inventory buffer. We expect stockdraws to be a hefty 0.65 mb/d in Q3 14.
The challenge for OPEC in the coming months is less about constraining supplies to 30 mb/d as the market had feared at the start of the year, but rather about being able to supply the higher call on its crude in Q3 14, given the plethora of problems within its member countries, particularly those in Africa.