Market Report: Oil Markets in for Bumpy Ride

Monday, April 05, 2004

As winter subsides and warmer weather arrives in the northern hemisphere, the traditional drop in global oil demand should be at hand. But given a number of outside factors, the balance of 2004 should be anything but business as usual.

Oil demand is estimated to fall by 2.3 million barrels per day (mb/d) between the first and second quarters of 2004, much of which is projected to take place in OECD Pacific and the FSU. While demand will drop, it traditionally doesn't stay down for long, with the summer driving season creating a sharp spike upward in consumption, particularly in North America, which usually accounts for half of the estimated 2.0 mb/d growth in third quarter global demand.

The lull between peak winter and summer demand poses a number of challenges. Shipping logistics come under pressure as crude and product tankers are diverted from established winter routes to summer markets. Crude logistics are squeezed as refiners reduce crude purchases ahead of the maintenance season and then just as quickly ramp-up crude runs to maximize gasoline production. These developments are established and generally occur every year. Under normal circumstances, markets adjust to these seasonal variations by building and drawing stocks.

Other Factors

The capacity limitations of the North American refining sector are such that the demand for gasoline and blending components is increasingly satisfied by imports from Europe and Asia. Subject to the relative balance between crude versus product stocks, the oil market can become more or less focused on one or the other of these market segments. Tightness in one or the other leads to what the trade terms a crude or product driven market.

Market developments suggest that this year's transition is likely to be more difficult and subject to greater volatility than normal. Both North American crude oil and gasoline stocks are tight in advance of peak demand. This situation, already exacerbated by structural elements and the supply management policies of producing countries, could be further tested by geopolitical developments. Producers seem intent on supplying the market in such a way as to maintain tight stocks. Their proposed April 1 target reduction keeps the market on edge in the face of global demand growth reinforced by the perceptions of mounting tension in Nigeria and Venezuela. Underpinning these developments is limited spare global production capacity estimated at less than 2.0 mb/d. The implementation of tougher environmental standards in key U.S. consuming regions combined with refinery maintenance and a backwardated market contribute to lower gasoline stocks. This situation is further aggravated by the risk of adverse geopolitical developments. Venezuela is a key supplier of gasoline to North America. Even a short-term supply disruption here could pose serious challenges, given the limited number of alternative foreign suppliers that can meet the new US specifications. The current market is more fragile than normal to the extent that tightness on the product side reinforces developments on the crude oil side. It should come as no surprise that the funds are having a field-day in this environment, as evidenced by the record breaking level of open interest and their volume of net-long positions. While supporting short-term prices, the latter undermines longer-term market stability.

Summary

• Asia: Strong oil product demand prospects for non-OECD Asia have raised the forecast of global oil demand growth for 2004 by 220 kb/d, to 1.65 mb/d.

• China: ?The forecast of Chinese demand growth for 2004 has been raised by 230 kb/d, to 580 kb/d. While the sustainability of China's rapid economic growth rates remains a matter of debate, structural shifts in Chinese oil demand set the stage for continued expansion.

• The China Ripple Effect: Chinese economic expansion is boosting neighboring economies, fueling oil demand growth in the entire region. The growth assessment for other non-OECD Asian economies has been increased by an average 40 kb/d for 2003, to 160 kb/d, in light of fourth quarter data - both new and revised - that show soaring demand in Taiwan, Thailand and Singapore and recovering consumption in India.

• U.S. demand growth was steeper than previously estimated in the fourth quarter of 2003 and has also exceeded expectations so far this quarter. A 660 kb/d upward adjustment to preliminary U.S. data lifted yearly U.S. growth for December to 3.9%, accounting for the bulk of a 310 kb/d upward adjustment to fourth-quarter North American demand.

(Source: International Energy Agency, Monthly Oil Market Report, March 2004)

Maritime Reporter November 2014 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

Offshore

Nordic Yards Delivers 'Wind Server'

Nordic Yards officially handed over the offshore service vessel to the Danish company DBB Jack-Up Services A/S. During the handover ceremony, the ship was named ‘WIND SERVER’.

Reports on Rosneft Arctic Projects

On December 18, Member of Rosneft Board of Directors, special representative of President of the Russian Federation on international cooperation in the Arctic

Abigail Ross Hopper Named BOEM Director

Secretary of the Interior Sally Jewell today named Abigail Ross Hopper as the Director of the Bureau of Ocean Energy Management (BOEM), which manages the development

Maritime Security

USCG on Cuba Policy Changes

The U.S. Coast Guard missions and operations in the Southeast remain unchanged. The Coast Guard strongly discourages attempts to illegally enter the country by taking to the sea.

NASSCO Opens Bremerton Repair Facility

General Dynamics NASSCO celebrated the grand opening of its new location in Bremerton, Wash., yesterday. The facility will support the company’s recently-awarded contract to repair and maintain U.

USCG Commandant to Address PVA Convention

Commandant of the U.S. Coast Guard Admiral Paul F. Zukunft will attend the PVA Annual Convention at MariTrends 2015 in Long Beach, Calif. and deliver a keynote

 
 
Maritime Security Navigation Pipelines Pod Propulsion Port Authority Salvage Ship Electronics Ship Repair Ship Simulators Shipbuilding / Vessel Construction
rss | archive | history | articles | privacy | terms and conditions | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.1834 sec (5 req/sec)