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Tuesday, October 23, 2018

Oil supply adjustments keep shipping on its toes

The International Energy Agency (IEA) reports that October OPEC crude supply fell by 0.335 mbd to 29.4 mbd on lower Iraqi, Saudi and Iranian supply. This is 0.400 mbd below the fourth quarter 2006 (4Q06) 'call on OPEC' and leaves effective spare capacity at 2.2 mbd. The average 2007 call has edged down to 28.3 mbd on weaker demand and higher biofuel supply projections, versus 28.8 mbd in 2006.


The global oil product demand growth rate has been slightly lowered in 2006 to +1.1%, versus +1.2% in last month's report, following lower third quarter demand in OECD Pacific and China, but this figure is forecast virtually unchanged at +1.7% for 2007. Subdued growth in China possibly reflects stock shifts, rather than a lower trend growth. Lower temperatures in Europe and the U.S. could bolster demand following a relatively mild October.


Total OECD industry oil inventories rose by 29 mb in September as higher product stocks in North America and the Pacific offset lower crude and 'other oils' inventories. Weekly data for the U.S. and Japan, however, show an offsetting drawdown in product stocks in October. OECD September demand cover was unchanged at 55 days - that is two days higher than last year.


World oil supply reached 85.3 mbd in October, up 100 kb/d on the month as OECD increases countered lower OPEC supply. Non-OPEC output is averaging 51.0 mbd in 2006 and is forecast to average 52.7 mbd in 2007. Upward revisions are affected by U.S. and biofuels supply, while North Sea, Former Soviet Union (FSU), China and Latin America supply is revised downwards. OPEC NGL supply rises by 0.2 mbd in both 2006 and 2007.


Heavy autumn refinery maintenance cuts are likely to mean that OECD crude runs are down by a further 1.3 mbd in October, following a 0.7 mbd decline in September. Projected global refinery maintenance peaked in October, with an average 3.7 mbd estimated shutdown during the month. Outages should fall to less than 1 mbd by the end of the year.


Brent and WTI futures trended sideways in October, hovering just below USD 60. Mild temperatures and the (so far) incident-free hurricane season outweighed sharp product stock draws in the U.S. and the announcement of a larger-than-expected output cut by OPEC from 1 November.


Contact: Erik Ranheim