Oil prices declined for the second month in a row as markets responded to excess crude supply and receding fears over the disruption to oil supplies by the conflicts in Iraq, Libya and Ukraine, the National Bank of Kuwait said Friday in its oil market report.
"By the end of August, international oil prices had declined for the second month as markets readjusted to excess supply, weakening global demand and overblown fears about potential supply disruptions caused by the conflicts in Iraq, Libya and Ukraine," reads the NBK's report.
"Having hit 13-month lows during August, Brent crude finished the month at just below USD 101/bbl, down by almost USD 4 from the start of August while the US benchmark, West Texas Intermediate (WTI), closed at just under USD 98/bbl, a drop of less than half a dollar. Tracking Brent's decline, Kuwait Export Crude (KEC), meanwhile, was also down by almost USD 4, to USD 99.6/bbl." The report noted that the International Energy Agency (IEA) has revised down its estimate for world oil demand growth in 2014 by 0.2 million barrels per day (mb/d) to 1 mb/d. In 2015, demand is forecast to rise by 1.3 mb/d.
"The downward revision by 0.2 mb/d comes in response to weaker-than-expected demand growth in 2Q2014, which, at 0.7 mb/d, was the slowest year-on year growth rate since 1Q2012. It also follows a downgrade in the global macroeconomic outlook for 2014 by the International Monetary Fund (IMF)," noted the report. In July, the IMF reduced its global GDP growth forecast by 0.3 percent to 3.4 percent, citing a weak recovery in the advanced economies, especially in the Euro area, and a slowdown in emerging economies (primarily Russia).
Nevertheless, with an improvement in macroeconomic conditions expected in 2015, world oil demand growth is projected to accelerate next year, by an additional 1.3 mb/d (or 1.5 percent y/y) to average 94 mb/d in total.
With regard to oil supplies on the market, the NBK noted that the total OPEC crude output (including Iraq) fell in July but Saudi Arabian production rose to its highest level in ten months.
"Total OPEC crude output in July decreased by 0.5 mb/d to 30.5 mb/d according to production data obtained through direct communication between OPEC and national sources. Iran, Iraq and Nigeria reported production declines, with the latter reporting a drop of almost 20 percent from its June output. "In contrast, Saudi Arabia, Libya and Kuwait posted production gains on the previous month, with Libya boosting output by more than 70 percent in the space of a month. Saudi Arabian production was over 10 mb/d in July-for the first time since September 2013-partly in response to increased domestic consumption, which tends to spike in the electricity-intensive summer months." Furthermore, the report said that the non-OPEC supply fell by 170,000 b/d in July to under 56.2 mb/d according to the IEA. The largest contributor to the drop from June was Russia, which experienced a seasonal dip in condensate production and declines in some of its maturing fields during the month.