Fundamentals September 2012

Published at 18:11 5 Oct 2012 by . Last edited 11:17 22 Aug 2019.

The flow of macroeconomic data over the past month has failed to show any sustained signs of recovery in global economic activity, with the exception of a few glimmers from the US. Oil demand indications remained broadly uninspiring through August, as the data in the report showcases. Energy Aspects estimates for September show the continuation of the trend, albeit with a mild improvement in overall Asian demand. We expect demand to pick up in Q4, on the back of an improvement in Chinese oil demand and seasonal winter consumption kicking in.

Despite the significant tightness in oil product balances, global products demand has remained fairly muted. Surprisingly, in August, the growth of gasoline demand substantially outpaced that of distillates. The bulk of the tightness in the products markets, however, has emerged from a plethora of refinery outages. Aside from the various refinery shutdowns due to Hurricane Isaac, US refineries have been marred by unplanned outages. Overall, with solid margins globally, we expect refineries to run hard once they return from turnaround, which should help to ease the severe tightness in product balances somewhat.

Non-OPEC supplies continue to be a tale of two regions: North America and the rest of the world. Those viewing the world from the prism of the US can only see rising oil production. Yet, the rest of non-OPEC is fraught with disappointments that are not confined to the North Sea.

OPEC oil production continued to rise in August, despite a pull back in Iranian production. The average of third party estimates Energy Aspects collects pegs OPEC-12 output at 31.58 mb/d, higher m/m by 0.18 mb/d and y/y by 1.62 mb/d, despite a drop in Iranian production by another 0.1 mb/d over the month. Iranian oil production, totalled 2.81 mb/d, although anecdotal data suggests that exports fell below 1 mb/d, suggesting that the third party estimates may be on the higher side. However, with Iran starting to export up to 1.2 mb/d this month, according to Energy Aspects estimates, the m/m decline that started since September 2011 is likely to have been reversed.

The latest IEA data on OECD stocks in July showed the fifth straight monthly build, of 10.6 mb, in overall crude and product stocks, taking levels to 2714 mb. However, this build was significantly lower than the seasonal average build of 20.7 mb. Product stocks remained a massive 42 mb below the seasonal average, while crude inventories, despite declining by 16.5 mb. Distillate stocks remain particularly tight.

In the non-OECD countries, China continued to be in heavy destocking mode, with the pace of desctocking picking up considerably over August. Indian destocking continued too, with crude stockpiles falling by around 0.2 mb/d in August to a level significantly lower than the five-year average.

Overall, despite the strength in US and Iraqi production, the disappointment in non-OPEC supplies and the sharp fall in Iranian production kept markets tight in August, with inventories drawing. However, with Iranian supplies on the rise and demand indications still fairly weak, early signals point towards an easing in September balances. However, we expect demand to pick up heading into Q4, as winter weather kicks in. We do not anticipate non-OPEC supply improving substantially, beyond the slight seasonal upturn in North Sea following the completion of maintenance in Q3, although we expect OPEC volumes to remain at elevated levels. Iranian exports will be a key swing factor, depending on whether further sanctions have the intended impact.

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