KBC energy economics oil market update

Brent crude prices lessened in March versus February with no sign of a supply cut back. The US rig count has dropped by around 50% compared to levels a year ago, but oil production sustained growth. In February, global oil production increased by 1.5 million bpd year-on-year. Saudi Arabia’s oil production is now estimated at 10 million bpd and likely to stay at this level as the Kingdom tries to meet rising domestic demand and also protect its share of an increasingly competitive market. While weather has impacted Iraqi output, the overall production upward trend remains. Even more crude supply can be added globally if a deal is reached between Iran and the P5+1 group of nations.

In Latin America demand now appears to be eroding, however there are some signs of US and Indian product demand increasing. Similarly, the Middle East is showing strong economic growth, but continued low oil prices will have a negative impact on oil demand. KBC expects world oil demand to increase by 1.2 million bpd this year, compared to 0.8 million bpd in 2014. Widening contango, particularly in WTI market, is leading to an increase of almost 1 million bpd in crude and product stock builds. More than 30 million bbls have been added to US crude inventories in the past 30 days alone. Geopolitical risks have also increased in the wake of the conflict in Yemen, where Saudi Arabia and Iran continue to engage in a series of proxy wars, and continued turmoil in Iraq and Libya.

Oil prices remained volatile in early April, with Brent prices rising nearly 6% on 2 April. That increase was prompted by speculation of a nuclear deal between the major powers and Tehran would offer little chance for any significant near-term increase in crude exports until 2016. Prices subsequently fell by 6% on 8 April after news of a sharp rise in US crude inventories and record Saudi output of 10.3 million bpd in March.

March refining margins in all the three key regions increased on strength in gasoline. European conversion margins jumped from US$6.35/bbl in February to nearly US$8.50/bbl in March, a level not seen since September 2012. Asian cracking margins rose even more averaging US$9.00/bbl in March and up by US$1.75/bbl from February—a level not seen since June 2008. However, it was the USGC, with double-digit margins, that has cemented top spot among its European and Asian counterparts.


Adapted from press release by Joseph Green

Published on 16/04/2015


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