HIGHLIGHTS. 12 September 2013

Transcription

1 12 September 2013 HIGHLIGHTS Oil futures escalated in August on rising geopolitical tensions over Syria s suspected use of chemical weapons and the near total shut in of Libyan production. Prices turned lower in early September as a Russian proposal for Syria to surrender its chemical weapons gained traction. Brent was last trading at $111.60/bbl, WTI at $107.50/bbl. The forecast of global demand growth remains flat at 895 kb/d for 2013, as stronger than expected deliveries in July offset concerns about the demand impact of currency fluctuations in emerging market economies. Demand growth is forecast to rise to 1.1 mb/d in 2014, as the underlying macroeconomic backdrop solidifies. Global supply is estimated to have fallen by 770 kb/d in August to mb/d, with both non OPEC and OPEC registering monthly declines. In 3Q13 non OPEC production is expected to rise by 520 kb/d q o q as a seasonal decline in the North Sea is more than made up for by North American growth and steady production elsewhere. OPEC crude supplies fell by 260 kb/d to mb/d in August as nearrecord Saudi output only partly offset a collapse in Libyan production. The call on OPEC crude and stock change was raised by 200 kb/d on higher demand for 3Q13 but lowered by 100 kb/d for 4Q13, to 30.3 mb/d and 29.6 mb/d, respectively. OECD commercial total oil stocks built by a weak 8.0 mb to mb in July, bringing their deficit to the five year average to 65 mb, its widest in two years. Refined products covered 30.7 days of forward demand, a rise of 0.6 day on end June. Preliminary data indicate OECD inventories drew counter seasonally by 14.2 mb in August. Global refinery crude runs reached a seasonal peak in July, at an estimated 78.2 mb/d, up 1 mb/d from June and 1.8 mb/d above a year earlier. Throughputs are set to fall steeply from August on weaker margins and heavy maintenance. Global runs average 77.2 mb/d in 3Q13, up 1.1 mb/d y o y, and 76.8 mb/d in 4Q13.

2 TABLE OF CONTENTS HIGHLIGHTS... 1 HEATING UP AND COOLING DOWN... 3 DEMAND... 4 Summary... 4 Global Overview... 4 Emerging Market Currency Depreciation Set to Impact Demand... 5 Top 10 Consumers... 6 OECD Americas Europe Asia Oceania Non-OECD SUPPLY Summary OPEC Crude Oil Supply Libyan Oil Supplies Cascade Lower Non-OPEC Overview OECD North America Mexico s Proposed Energy Sector Reforms A Watershed for the Energy Industry? North Sea Non-OECD Latin America Asia Africa Former Soviet Union OECD STOCKS Summary OECD Inventory Position at End-July and Revisions to Preliminary Data Analysis of Recent OECD Industry Stock Changes OECD Americas European Industry Stock Draws in Perspective OECD Europe OECD Asia Oceania Recent Developments in Singapore and China Stocks PRICES Summary Market Overview Futures Markets Financial Regulation Spot Crude Oil Prices Spot Product Prices Freight REFINING Summary Global Refinery Overview Refining Margins OECD Refinery Throughput Non-OECD Refinery Throughput TABLES... 57

3 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT MARKET OVERVIEW HEATING UP AND COOLING DOWN After rallying to six month highs amid expectations of western military strikes in Syria, benchmark Brent oil prices ratcheted down again as support seemed to build for an alternative plan to withhold strikes and neutralise Syrian chemical weapon stocks instead. Whether a crisis has been permanently averted or merely postponed remains unclear, however. Oil markets may be taking a breather, but prices remain elevated. The Syrian conflict continues to rage. Across the Mediterranean, a collapse in Libyan exports, which played a large supporting role in the recent run up in prices, shows no sign of abating. While there are still plenty of causes for concern, there is some good news, too. Despite continued tensions, the recent tightening of oil market fundamentals the broad bullish backdrop that has arguably heightened the oil market s sensitivity to the Syrian threat looks set to give way to somewhat easier conditions in the fourth quarter. After hitting an all time high in July, refinery demand for crude is receding. Nowhere is this truer than in Russia, where a refining boom slashed crude exports in summer, but where heavy seasonal plant maintenance now looks set to reopen the export floodgates. In Europe and Asia, some refiners may decide to extend maintenance shutdowns due to poor margins. Global crude supply notwithstanding the Libyan problems looks set for an upward jump in 4Q13, thanks to a heady mix of seasonal, cyclical, political and structural factors. The winding down of seasonal field maintenance in the North Sea and the US Gulf of Mexico will bolster 4Q13 supply even as a political accord between Sudan and South Sudan sets the stage for a ramp up in Sudanese crude exports. New North American production including US light tight oil and Canadian synthetic crude continues to surge. Saudi production is hovering near record highs, even as a seasonal dip in domestic airconditioning demand looks set to free up more barrels for export. OECD oil inventories have tightened in recent months but may be on the verge of a rebound. The latest data suggest that total industry oil stocks built by just a fraction of the five year average in July, bringing the OECD oil stock deficit to the five year average to 65 mb, its widest in two years. Our supply/demand forecast suggests however that, even in the absence of an increase in OPEC production (i.e., holding OPEC crude output flat at August levels), rebounding OECD stocks could match or even exceed their fiveyear average by December. Assuming zero Libyan production from September through December, stocks could still top their five year average by end year. Measured in days of forward demand, OECD product stocks under both scenarios would exceed their five year range by the end of this month. These projections must be taken with a grain of salt, as reality rarely unfolds according to plan. Our balances also predicted seasonal growth in OECD oil stocks for the last six months, whereas in fact stocks held about flat. That discrepancy shows up as a hefty Miscellaneous to Balance time item of 1 mb/d for 2Q13 reflecting either non OECD stock builds, unreported OECD builds, overstated supply, understated demand, or any combination of the above. To correct for such a factor, we have tried carrying forward a large Miscellaneous to Balance line item in our 4Q13 balance scenarios. Even so, OECD demand cover is still likely to rise to the top of the range through the remainder of the year if OPEC output is held steady, or hover near average levels in a low OPEC supply scenario. Global balances are of course a rather coarse way of looking at the market, especially in the absence of good non OECD stock data. The big picture also masks regional imbalances that can be a challenge for market participants on the ground. Surging US LTO or Canadian synthetic production might be good news for US refiners but not as much of a help to Mediterranean refiners looking for a substitute for disrupted Libyan barrels. Any shift in market conditions will yield winners and losers, until the markets rebalance. But, while the geopolitical storms in the Middle East and North Africa have yet to pass, easing fundamentals look set to lessen the pressure somewhat on market participants at least for the next few months. 12 SEPTEMBER

4 DEMAND INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT DEMAND Summary Global oil demand growth is forecast to pick up to 1.1 mb/d in 2014 from 895 kb/d in 2013 as the underlying macroeconomic situation improves. Global oil demand is projected to average 90.9 mb/d in 2013 and 92.0 mb/d in High cooling use in July and August raised the estimate of demand for 3Q13, compounding the impact of modest improvements in the economy. Roughly 260 kb/d has been added to the total 3Q13 global consumption estimate, to 91.5 mb/d, since last month s Report. Upward adjustments to the July demand estimates for the US (+190 kb/d), China (+175 kb/d) and Russia (+90 kb/d) led the revision. Global Oil Demand ( ) (million barrels per day) 1Q12 2Q12 3Q12 4Q Q13 2Q13 3Q13 4Q Q14 2Q14 3Q14 4Q Africa Americas Asia/Pacific Europe FSU Middle East World Annual Chg (%) Annual Chg (mb/d) Changes from last OMR (mb/d) Currency depreciation in a number of emerging markets, adding to the impact of already high oil prices, has raised the possibility of further associated price effects on demand. Several countries including India, Indonesia, Malaysia, Peru, the Philippines and Thailand have faced dramatic currency depreciation versus the US dollar in recent weeks. If sustained, this may ultimately curb their demand trend or, in countries where oil subsidies are in place, raise pressure on their governments to reduce those subsidy programmes. The divergence in demand trends between emerging markets and developed economies has been easing somewhat lately. Data for 2Q13 show the OECD demand contraction slowing to 0.3% y o y and non OECD demand growth easing to 2.6%, a much narrower gap in the growth pattern than the average of the last five years. Global Overview The possibility of slowing oil demand in emerging markets has dominated the headlines recently, with reports of sharp currency depreciation in several non OECD countries compounding the effect of already high oil prices in US dollar terms. Higher prices, with all else being held equal, have a negative influence on demand, although in many countries subsidies can cushion their effect for some time. Countering such concerns are the latest demand numbers, which on balance came in stronger than expected for July. Overall, global oil demand is forecast to average roughly 90.9 mb/d in 2013, up by 895 kb/d (or 1.0%) y o y, essentially unchanged on last month s growth estimate. Growth is expected to accelerate in 2014 to around 1.1 mb/d (or 1.2%), lifting demand to 92.0 mb/d, as the macroeconomic backdrop continues to improve. The International Monetary Fund s July World Economic Outlook forecast a rise in global GDP growth to 3.8% in 2014, from 3.1% in 2013; predictions that underpin our oil forecasts. Heightened 4 12 SEPTEMBER 2013

5 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT DEMAND uncertainty surrounds this demand outlook, particularly in the wake of the recent sharp depreciations of several emerging market currencies (see Emerging Market Currency Depreciation Set to Impact Demand) and escalating geopolitical tensions. Days Cooling Degree Days - France Diff. to 10-Year Average and Last Year Aug 12 Nov 12 Feb 13 May 13 Aug 13 Days Cooling Degree Days - Japan Diff. to 10-Year Average and Last Year -10 Aug 12 Nov 12 Feb 13 May 13 Aug 13 Diff to 10-year Average Diff to Previous year Diff to 10-year Avg Diff to Previous Year The estimate of global demand for 3Q13 was revised higher by around 260 kb/d since last month s Report. Several countries account for the bulk of the adjustments for July, including the US (+190 kb/d), China (+175 kb/d), Russia (+90 kb/d), France (+75 kb/d), Germany (+70 kb/d) and Japan (+45 kb/d), as warmer than normal temperatures lifted air conditioning use and compounded the effect of fledgling economic recovery. Although the electricity sector is increasingly less reliant on oil for its power needs (see Medium Term Oil Market Report 2013) some countries still use oil, while vehicle engine efficiencies deteriorate when air conditioning is in use. A downward adjustment of 130 kb/d to the estimate of Indian demand for July provided a partial offset, as did a number of smaller reductions such as that seen in Mexico ( 25 kb/d). Revised June estimates have also been collated, with the upside roughly balancing the downside. Upward demand adjustments for June include the UK (+130 kb/d), Chinese Taipei (+85 kb/d), the Netherlands (+45 kb/d), France (+35 kb/d) and Australia (+30 kb/d), offsetting curtailments in the US ( 220 kb/d), Germany ( 90 kb/d) and China ( 85 kb/d). In the last few months, the divergence in growth patterns between the OECD region and the emerging market and developing economies has eased somewhat. As of 2Q13, OECD oil demand remains on a falling trend, but the pace at which it declines has fallen back to a relatively muted 0.3% over the year earlier, versus a previous five year average annual decline of 1.7%. For non OECD economies, growth slowed to 2.6% in 2Q13 from a five year average of 3.6%. Emerging Market Currency Depreciation Set to Impact Demand The rapid depreciation of many emerging market currencies since 1Q13, if sustained, may adversely affect oil demand. As oil is priced in US dollars, when an oil importing country s currency falls versus the US dollar, its oil import bill in domestic currency rises. Given the scope of recent currency depreciation, coming on top of already high oil prices in dollar terms, the latest currency movements may translate into lower oil consumption over time. Certain currencies in non OECD Asia and Latin America have been hit hardest by speculation that the US Federal Reserve will soon begin tapering its asset purchasing programme. The Indian rupee lost nearly one third of its value against the US dollar in the four months through to the end of August. In many emerging market economies the presence of subsidies plays an important role in cushioning the impact of oil price increases. Domestic oil price subsidies, History of selected currencies, indexed to US Dollar January 2013 = 100 Jan Feb Mar Apr May Jun Jul Aug India Philippines Thailand Indonesia Malaysia Brazil 12 SEPTEMBER

6 DEMAND INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT Emerging Market Currency Depreciation Set to Impact Demand (continued) such as those that effectively exist for Indian diesel, shield the consumer from the direct impact of price pressures. The price increases do not simply vanish, however, as they instead filter through indirectly to the economy as the government takes the hit in terms of sharply higher import bills. Over the longer term, governments will likely become less capable of protecting oil consumers from price effects, as currency depreciation makes subsidies increasingly burdensome and ultimately unaffordable. Oil subsidies can themselves feed into currency depreciation. Many of the countries that have recently faced steep contractions in the value of their domestic currency experienced it due to their unsustainable current account balances. Pressures will accordingly mount to curb subsidies in such cash strapped economies, dimming long term demand prospects. Malaysia is a case in point: on 3 September, it slapped price increases of 10.5% and 11% on 95 RON gasoline and diesel, respectively. Indonesia hiked low octane gasoline prices by 44% in June, and 22% for diesel. Financial pressures are also mounting on India to speed up its own de subsidisation program. Since 17 January 2013, the Indian government has effectively cut diesel subsidies by roughly half a rupee per litre per month. Further subsidy cuts are likely, coupled with the possible application of additional methods to curb demand (see India section in Top 10 Consumers). The more subsidies are curtailed, the greater the degree of price exposure in demand. Price (INR) India retail prices vs currency rate Apr 13 May 13 Jun 13 Jul 13 Aug 13 Gasoline Diesel Jet Fuel FX FX vs USD Price (MYR) Malaysia retail prices versus currency exchange FX vs USD Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep RON Gasoline Diesel FX It is too early to predict the full impact from these currency swings, as we have yet to see the final scope of depreciation, let alone assess its macroeconomic impact and feed through into oil consumption, or the resultant degree to which subsidy programmes change. We have, however, assumed marginally lower oil demand across a selection of the hardest hit countries: India, Indonesia, Malaysia, Peru, the Philippines and Thailand. In aggregate, these revisions dampen the 2H13 forecast at the margin. Despite this pressure, emerging market oil demand is still expected to rise at a relatively brisk pace in 2H13, particularly compared with OECD countries, but at around 2.6% y o y the trend is well down on the previous five year average of roughly 3.6%. Should currency depreciation continue/widen, the adverse demand effect will be more significant. Top 10 Consumers US The latest US official consumption figures assessed monthly demand at around 18.8 mb/d in June, a decline of 1.0% on the year earlier. Based on those data and preliminary demand estimates for July and August, which are based on weekly data from the US Energy Information Administration, just half of the first eight months of 2013 show y o y demand growth. Our US demand outlook thus remains somewhat restrained: roughly flat growth for 2013 and a slight decline in Not only does the IEA foresee further strong efficiency gains capping consumption, but also the possibility that the US economy, despite accelerating, will lack sufficient momentum to support any greater upside in demand. The IMF s July outlook forecasts US GDP growth at 2.7% for 2014, which, when combined with the relatively high oil price environment and ongoing efficiency gains, will likely curb US oil demand SEPTEMBER 2013

7 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT DEMAND kb/d 20,500 US50: Total Oil Product Demand kb/d 9,400 US50: Motor Gasoline Demand 19,500 9,000 18,500 8,600 17,500 Jan Apr Jul Oct Jan Range year avg 8,200 Jan Apr Jul Oct Jan Range year avg Despite reports of recent strength in the US demand, the underlying macroeconomics remain somewhat subdued. Economic growth in 2Q13 amounted to just 0.4% over 1Q13 (but 1.7% when annualised). In essence, the 2Q13 US GDP growth trend was actually below that experienced by the UK, Korea, Germany, France and Japan, and slower than the US pace of growth as recently as 3Q12. Top-10 Oil Consumers (thousand barrels per day) Demand Annual Chg (kb/d) Annual Chg (%) Jun Jun Jun US50 18,786 18,661 18, China 10,221 10,140 10, Japan 3,877 4,542 4, Russia 3,575 3,404 3, India 3,415 3,427 3, Saudi Arabia 3,281 3,026 3, Brazil 3,043 3,088 3, Germany 2,492 2,382 2, Korea 2,301 2,311 2, Canada 2,233 2,295 2, % global demand 59% 59% 59% Looming US sequester cuts and arguments about the debt ceiling are likely to dampen consumer sentiment in 2H13, with a particular strong impact on gasoline demand as high retail gasoline prices and declining consumer confidence compound the impact of vehicle efficiency gains. The US Energy Information Administration estimates that the efficiency of the US light vehicle pool improved by around 1.9% y o y in 1H13. China This has been a mixed month for Chinese demand data, with offsetting adjustments to the June ( 85 kb/d) and July (+175 kb/d) series. This net addition meant that despite the maintenance of our forecast for significantly slower growth in 2H13, the forecast for the year as a whole has been raised modestly, to 3.8% versus last month s 3.7% projection. Revised estimates of Chinese apparent demand (defined as the sum of refinery output and net product imports, minus product inventory builds) depict roughly 10.2 mb/d of oil products being consumed in June, a gain of 5.4% on the year earlier, supported by particularly sharp gains in transport fuels and naphtha. Preliminary July estimates imply a similar rate of growth, to 10.3 mb/d, despite reports of product destocking which have the effect of inflating apparent demand estimates (see Chinese Demand Forecast Upgraded, OMR January 2013). Early indications point towards a significant deceleration in August, in line with the forecast carried in last month s Report, as refiners reduced runs by 155 kb/d over July. 12 SEPTEMBER

8 DEMAND INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT kb/d China: Total Oil Product Demand kb/d 1,200 China: Naphtha Demand 10,500 1,000 9, ,500 Jan Apr Jul Oct Jan Jan Apr Jul Oct Jan Range year avg Supporting the Chinese growth forecast of nearly 4%, in a year of exceptionally choppy demand, is the IMF assumption of 7.8% rise in GDP in 2013 (decelerating to 7.7% in 2014). The latest economic indicators such as industrial output rising 9.7% y o y in July and 10.4% in August add credibility to these forecasts. Japan China: Demand by Product (thousand barrels per day) Demand Annual Chg (kb/d) Annual Chg (%) LPG & Ethane Naphtha 985 1,079 1, Motor Gasoline 1,953 2,100 2, Jet Fuel & Kerosene Gas/Diesel Oil 3,406 3,427 3, Residual Fuel Oil Other Products 1,736 1,768 1, Total Products 9,768 10,140 10, The unusually warm early summer temperatures have raised the estimate of 2013 Japanese oil consumption as power sector needs (driven by air conditioning demand) are likely to exceed earlier expectations. Fuel oil and other product demand (which includes crude oil for direct burn) notably support power sector needs. For the year as a whole, an overall decline rate of 3.7% is now assumed (previously the forecast decline rate was 3.8%), taking total Japanese demand to an average of around 4.5 mb/d. Consumption contracted by a steep 4.3% y o y in 2Q13 but is expected to show slower declines from then on. Having fallen sharply in 1Q13, gasoline demand will lead the reversal in fortunes in 2H13, supported by likely gains in consumer confidence. kb/d 6,000 Japan: Total Oil Product Demand 5,500 5,000 4,500 4,000 3,500 Jan Apr Jul Oct Jan Range year avg kb/d Japan: Motor Gasoline Demand 1,200 1,150 1,100 1,050 1, Jan Apr Jul Oct Jan Range year avg 8 12 SEPTEMBER 2013

9 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT DEMAND India In July, for the second consecutive month, Indian demand contracted y o y as the country s effective desubsidisation programme continues to cut into diesel consumption. Since January, the government has been undergoing a programme of cutting the effective diesel price subsidy by roughly half a rupee per litre per month, whereby half a rupee is equal to roughly one US cent as of 11 September. Reduced agricultural demand and signs of slowing economic growth also contributed. Agricultural consumption has been particularly curbed as of late, with relatively plentiful rains reducing irrigation needs (a big gasoil/diesel user), while the recent economic slowdown has dampened consumption, a pressure compounded as prices have risen. Although consumer purchasing decisions have, to date, largely avoided the most dire consequences from the rupee s depreciation, with effective subsidies continuing to protect domestic diesel demand, the already cash strapped government is under pressure to reduce these subsidies still further, or find alternative methods to curb use. The oil ministry, in an open letter to the Prime Minister, has outlined some potential measures, such as requesting that refiners reduce imports, encouraging people to consume less, or restricting retailers opening hours (an option since discarded). kb/d 3,600 India: Total Oil Product Demand kb/d 1,600 India: Gasoil Demand 3,100 1,200 2,600 Jan Apr Jul Oct Jan Range year avg 800 Jan Apr Jul Oct Jan Range year avg Even if governments have many ways to discourage consumption, economists widely believe that the pricing mechanism is the most efficient method of distributing limited supplies. Indeed, the smaller gasoline sector which accounted for just 11.1% of Indian demand in 2012, versus 41.1% for gasoil has already experienced some sharp price gains, with six hikes seen since May (gasoline prices having risen by 17.5% between the end of May of the beginning of September, whereas diesel prices have inched up a mere 3.4%). The price effect is far from perfect, however, as demonstrated by the continued strong gains seen in gasoline demand. Also the current programme of curbing the effective diesel subsidy is not simply a commitment to raise the price by the stated amount each month, but instead a pledge to do so until the so called under recoveries have disappeared. The term under recoveries refers to the situation where the actual selling price is lower than the price retailers/distributors pay to refiners. This policy of small but steady steps showed significant progress with the under recoveries going down, from about 9 rupees per litre in January to 3.73 rupees per litre for the fortnight of 16 May. Due to a combination of a declining rupee and increases in the Indian crude oil price basket, the under recoveries shot up to rupees per litre for the fortnight of 1 September. Since January, diesel prices have been raised seven times, for a total of 4.25 rupees per litre. Local media speculation is rife that a one off Rupee 5 per litre hike is in the offing. Although this could be a step in the right direction, such a move looks unlikely with elections less than a year away. Whatever method is adopted, we have trimmed our own demand forecast, to 2.6% in 2013, from 2.8% before. 12 SEPTEMBER

10 DEMAND INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT Russia The strong recent Russian demand trend continues, with roughly 3.6 mb/d consumed in July, a gain of 5.5% on the year earlier and marking the fifth month in a row that growth has exceeded the previous sixmonth average. Once again, manufacturing continues to provide the majority of the demand support, with particularly sharp gains seen in gasoil, fuel oil and other products. Consumption of jet/kerosene and LPG has lagged as concerns regarding the pace of GDP growth have spread following the somewhat subdued 2Q13 number (+1.2% y o y). kb/d 3,600 Russia: Total Oil Product Demand kb/d 400 Russia: Residual Fuel Oil Demand 3,400 3, ,000 2,800 2,600 Source: Petromarket RG, IEA Jan Apr Jul Oct Jan Range year avg Source: Petromarket RG, IEA Jan Apr Jul Oct Jan Range year avg Regardless of the relatively strong 2Q13 demand showing with a near 3% gain in Russian oil use seen over the corresponding period for 2012 the forecast for the year as a whole remains largely unchanged, reflecting nagging concerns about the pace of macroeconomic momentum in the second half of the year. Although the majority of 2013, thus far, saw expansionary manufacturing sentiment depicted in its confidence statistics, the perspective clearly darkened in July/August. Filtering from these forces, overall oil consumption growth is forecast to average out at 3.2% in both 2013 and Russian Manufacturing PMI 53 Brazilian Manufacturing PMI Not e: 50=cont ract ion/ expansion t hreshold. Sources: HSBC, Markit 49 Aug12 Nov12 Feb13 May13 Aug Aug12 Nov12 Feb13 May13 Not e: 50=cont ract ion/ expansion t hreshold. Sources: HSBC, Markit Brazil Brazilian consumption in June averaged 3.0 mb/d, 45 kb/d less than our month earlier prediction. Slowing gasoil demand growth, itself a consequence of the Latin American nation s recent industrial woes, underpinned the lower number. Industrial sentiment has been on a declining trend since the beginning of the year, although HSBC s Manufacturing Purchasing Managers Index (PMI) remained within expansionary territory until July, requiring a less rampant growth in gasoil use, up 2.8% y o y in June versus previous a 12 month average gain of 6.5%. This mid year weakness, which is likely to continue through 3Q13 if the PMI is any guide, resulted in a modest curtailment in our 2013 growth forecast, to 3.4% down by two tenths of a percentage point on that carried in last month s Report SEPTEMBER 2013

11 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT DEMAND Saudi Arabia The consumption data for June came out roughly in line with last month s forecast, up 1.6% on the year earlier to 3.3 mb/d. By far the greatest upside was seen in fuel oil, as demand surged to a near five year high supported by additional power sector usage. Absolute declines in other products and gasoil provided a partial offset, suggesting some switching of direct crude burn and gasoil to fuel oil in power generation. With the underlying macroeconomic environment likely to deteriorate in 2013 the International Monetary Fund (IMF) forecasting GDP growth of 4.0% in 2013 after a gain of 5.1% in 2012 then so, too, will oil demand growth, to 3.6% in 2013 from 4.7% in Similar growth (+3.7%) is foreseen in 2014 as this rough trend continues. kb/d 3,500 Saudi Arabia: Total Oil Product Demand kb/d 500 Saudi Arabia: Residual Fuel Oil Demand 3, ,700 2, ,900 Jan Apr Jul Oct Jan Range year avg 200 Jan Apr Jul Oct Jan Range year avg Germany Despite reports of an uptick in recent German economic activity, the demand forecast for the year as a whole remains essentially flat, as the underlying macroeconomic growth trend remains subdued. The greatest upside, in the forecast, is provided by industrially important gasoil and LPG, while downside momentum is provided by heavier fuel oil and the transportation markets of gasoline and jet/kerosene. Predictions of continued efficiency gains will likely keep the demand forecast restrained in kb/d 2,900 Germany: Total Oil Product Demand kb/d 1,400 German: Gasoil Demand 2,700 1,200 2,500 2,300 1,000 2,100 Jan Apr Range Jul Oct Jan 5-year avg 800 Jan Apr Jul Oct Jan Range year avg Korea At an average of 2.2 mb/d in July, South Korean demand was in line with the forecast carried in last month s Report. There has, however been something of a redistribution of product across the barrel, as the previously overestimated other product category was seemingly too high at the expense of a combination of too little fuel oil, LPG, naphtha and gasoil. Particularly strong naphtha demand likely reemerged as the earlier spate of heavy cracker maintenance drew to a close. The overall consumption trend, for the year as a whole, is forecast to remain relatively flat, in line with government policy, little changed from last month s Report. 12 SEPTEMBER

12 DEMAND INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT kb/d 2,500 Korea: Total Oil Product Demand kb/d 1,150 Korea: Naphtha Demand 2,300 1, , ,900 Jan Apr Jul Oct Jan Range year avg 750 Jan Apr Jul Oct Jan Range year avg Canada Roughly 2.2 mb/d of oil products were consumed in June, according to the latest official data, an increase of 1.3% on the year earlier. Robust gains were seen in the transport fuels i.e. gasoline and jet and petrochemical industry supporting naphtha and LPG demand. Notable weaknesses were seen in the fuel oil sector, as tougher environmental regulations continue to see some switching out of heavier products. The forecast for 2013 has accordingly been downgraded modestly to a gain of 0.4% (previously 0.8%) as final June demand came out below our previous expectation alongside additional downside revisions to the baseline data. kb/d 2,400 Canada: Total Oil Product Demand kb/d 850 Canada: Motor Gasoline Demand 2, , ,100 2,000 Jan Apr Jul Oct Jan Range year avg Jan Apr Jul Oct Jan Range year avg OECD Contraction in OECD demand continued to slow in 2Q13, easing to 0.3% y o y, its narrowest decline rate in a year. This relative improvement emerged due to a combination of late winter weather heating demand in April (boosting gasoil/diesel use and to a lesser degree jet/kerosene) and budding signs of economic recovery in a few countries (notably Germany) towards the end of the quarter. Although the decline is forecast to regain momentum in 2H13, reaching 0.8% for the period and 0.6% in 2014 as a whole, this remains well down on the previous five year average. Americas Within the overwhelmingly weak OECD demand region, the Americas is likely to show the least feeble demand trend in 2013, which in itself amounts to a relatively flat 0.3% gain. This somewhat stagnant growth trend is forecast, as only Chile shows stronger oil demand growth (+2.3%) consequential on it possessing by far the most robust macroeconomic underpinnings (+4.6% according to the IMF s July World Economic Outlook, versus +2.9% for Mexico, +1.7% for the US and +1.7% for Canada). Ongoing weakness in Mexican fuel oil demand, a consequence of the power sector s growing preference for natural gas, dampened the overall demand trend with roughly 2.1 mb/d consumed in July. For the year as a whole, growth in Mexican oil use is forecast to remain essentially flat (up 0.1%), maintaining a 2.1 mb/d average SEPTEMBER 2013

13 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT DEMAND mb/d OECD Americas: Total Oil Product Demand kb/d 350 Mexico: Residual Fuel Oil Demand Jan Apr Jul Oct Jan Range year avg 150 Jan Apr Jul Oct Jan Range year avg OECD Demand based on Adjusted Preliminary Submissions - July 2013 (million barrels per day) Gasoline Jet/Kerosene Diesel Other Gasoil RFO Other Total Products mb/d % pa mb/d % pa mb/d % pa mb/d % pa mb/d % pa mb/d % pa mb/d % pa OECD Americas* US Canada Mexico OECD Europe Germany United Kingdom France Italy Spain OECD Asia & Oceania Japan Korea Australia OECD Total * Including US territories Europe The European demand picture remains somewhat subdued, despite reports of very warm July/August trimming 3Q13 vehicle efficiency rates (as additional vehicle air conditioning usage raises the average fuel requirement) and tentative signs of an economic bottoming out in the region, with 110 kb/d (or 0.8%) less oil products likely to be consumed in 3Q13 over the year earlier. Warmer climes also triggered relatively high levels of summer vacation travel. The 3Q13 momentum is, however, an improvement on the past five years, when the average decline rate was closer to 0.4 mb/d. kb/d 2,100 2,000 1,900 1,800 1,700 France: Total Oil Product Demand 1,600 Jan Apr Jul Oct Jan 5-year avg kb/d France: Gasoil Demand 1,150 1,100 1,050 1, Jan Apr Jul Oct Jan 5-year avg Following a steep contraction in 2012, the French demand sector, according to preliminary July data, showed modest signs of life. July demand of 1.8 mb/d was 0.5% down on the corresponding period a year earlier, a much slower decline than the 2.2% average drop of the previous 12 months. Domestic 12 SEPTEMBER

14 DEMAND INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT transport fuels led the upside, with total gasoil demand up 0.1% in July, to 1.0 mb/d, and gasoline use up 2.6% to 185 kb/d. The forecast for the year as a whole has been revised, to a decline rate of 1.4% versus the previous 2.1% estimate, consequential on roughly 75 kb/d being added to the July estimate and 35 kb/d to June. Asia Oceania The demand picture for OECD Asia Oceania continues to deteriorate, with preliminary July data pointing towards a 1.7% fall over the year earlier period, although very warm temperatures in Japan and Korea caused the contraction to ease somewhat compared to its recent trend. The demand forecast for 2013 is now assessed at 8.4 mb/d, down by 2.3% on the year earlier. Looking ahead, a moderation of this trend is envisaged for 2014, with a decline rate of 1.2% forecast. Consumption in the region falls to an average of around 8.3 mb/d in 2014, well below 2012 highs of 8.6 mb/d when the temporary addition of extra nuclear replacement fuel oil and other products in Japan propped up demand. mb/d 10.0 OECD Asia Oceania: Total Oil Product Demand mb/d 0.9 OECD Asia Oceania: 'Other Products' Demand Jan Apr Jul Oct Jan Range year avg Jan Apr Jul Oct Jan Non-OECD The pace of non OECD demand growth has fallen back somewhat, reflecting macroeconomic headwinds recently compounded by currency depreciation in many countries. Nevertheless, emerging market oil demand continues to grow relatively rapidly, and is forecast to continue expanding at a fairly fast clip through the forecast period growth averaging out at around 2.6% in 2H13 and 3.0% for 2014 as a whole. mb/d 45 Non-OECD: Total Oil Product Demand kb/d 1,400 1,300 Thailand: Total Oil Product Demand 42 1, ,100 1, Jan Apr Jul Oct Jan Range year avg 900 Jan Apr Jul Oct Jan Range year avg June demand for Thailand came in below month earlier expectations, at roughly 1.3 mb/d, a modest gain of 2.0% on the year earlier versus the previous 4.2% projection that fell more closely into line with the previous 18 month trend. Gasoil demand fell to its lowest level since October 2012, reflecting recent economic concerns. The Thai Industries Sentiment Index (TISI) fell in June, to 93.1 from 94.3 in May (any reading below 100 signals low confidence ), as manufacturers expressed concern regarding falling exports. In contrast, naphtha consumption in Chinese Taipei surged in June, reflecting increased usage ahead of reports of additional maintenance being taken in 3Q13 (see OMR August 2013) SEPTEMBER 2013

15 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT DEMAND kb/d 1,200.0 Taiwan: Total Oil Product Demand kb/d 450 Taiwan: Naphtha Demand 1, , Jan Apr Jul Oct Jan Range year avg 150 Jan Apr Jul Oct Jan Range year avg Further comprehensive analysis of Yemeni oil demand added roughly 30 kb/d to our 2010 estimate. This additional consumption reflects a reworking of our demand model to incorporate the latest data from the IEA s Energy Statistics of non OECD Countries. Our projection of future trends here has been modestly curtailed since last month s Report to incorporate the news that a new 400 megawatt gaspower power plant, in the country s eastern Marib province, should be open by mid Fuel oil dominates the power mix in Yemen, but the opening of the new gas facility in 2014 should bring about a more rapid switch from oil to gas. The new plant should be sufficient to cover the total power sector needs of the capital Sana, which the ministry estimates at megawatts. Non-OECD: Demand by Region (thousand barrels per day) Demand Annual Chg (kb/d) Annual Chg (%) May-13 Jun-13 Jul-13 Jun-13 Jul-13 Jun-13 Jul-13 Africa 3,691 3,815 3, Asia 21,487 21,915 21, FSU 4,510 4,793 4, Latin America 6,537 6,534 6, Middle East 7,830 8,061 8, Non-OECD Europe Total Products 44,773 45,804 45,856 2,014 1, SEPTEMBER

16 SUPPLY INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT SUPPLY Summary Global supplies in August fell by 775 kb/d to mb/d, with both non OPEC and OPEC registering monthly declines. Supplies were up around 620 kb/d from year ago levels, with a sharp rise in non OPEC output and OPEC NGLs of 1.74 mb/d more than offsetting a decline of just over 1.12 mb/d in OPEC crude production. Non OPEC supplies fell by 510 kb/d in August to mb/d as continued expansion of output in the US and Canada failed to counter seasonal declines in the North Sea, shut in production in China due to flooding, and offshore maintenance in Kazakhstan and Ghana. August production was still up 1.51 mb/d year on year, in line with strong annual growth of 1.2 mb/d forecast for OPEC crude oil supplies turned lower again in August with a sharp downturn in Libyan production only partially offset by near record output from Saudi Arabia. August OPEC output was pegged at mb/d, down by 260 kb/d. The call on OPEC crude and stock change was adjusted up by 200 kb/d on higher demand for 3Q13 but down by 100 kb/d on rising non OPEC supplies for 4Q13, to 30.3 mb/d and 29.6 mb/d, respectively. The call for 2013 is unchanged at 29.9 mb/d. Libyan oil production plunged to a post war low of 150 kb/d at one point in early September compared with 550 kb/d on average in August and 1 mb/d in July amid crippling labour disputes, civil unrest and political discord among government officials and tribal militias. The government has set up a crisis committee tasked with negotiating a settlement among the various striking workers and tribal militias in a bid to get the oil sector functioning again but to date there has been little visible progress. mb/d OPEC and Non-OPEC Oil Supply Year-on-Year Change May 12 Aug 12 Nov 12 Feb 13 May 13 Aug 13 OPEC Crude OPEC NGLs Non-OPEC Total Supply mb/d OPEC and Non-OPEC Oil Supply 50 Feb 13 Aug 13 Feb 14 Aug 14 Non-OPEC OPEC NGLs OPEC Crude - RS mb/d All world oil supply figures for August discussed in this report are IEA estimates. Estimates for OPEC countries, Alaska and Russia are supported by preliminary August supply data. Note: Random events present downside risk to the non OPEC production forecast contained in this report. These events can include accidents, unplanned or unannounced maintenance, technical problems, labour strikes, political unrest, guerrilla activity, wars and weather related supply losses. Specific allowance has been made in the forecast for scheduled maintenance in all regions and for typical seasonal supply outages (including hurricane related stoppages) in North America. In addition, from May 2011, a nationally allocated (but not fieldspecific) reliability adjustment has also been applied for the non OPEC forecast to reflect a historical tendency for unexpected events to reduce actual supply compared with the initial forecast. This totals 200 kb/d for non OPEC as a whole, with downward adjustments focused in the OECD SEPTEMBER 2013

17 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT SUPPLY OPEC Crude Oil Supply OPEC crude oil supplies turned lower again in August with a sharp downturn in Libyan production only partially offset by near record output from Saudi Arabia (see Libyan Oil Supplies Cascade Lower ). August OPEC output is pegged at mb/d, down 260 kb/d to from an upwardly revised July estimate. July output was adjusted higher by 355 kb/d to mb/d, largely due to more complete data for Saudi Arabia and Iraq. The call on OPEC crude and stock change was increased by 200 kb/d on higher demand for 3Q13 but down by 100 kb/d on rising non OPEC supplies for 4Q13, to 30.3 mb/d and 29.6 mb/d, respectively. The call for full year is unchanged at 29.9 mb/d. OPEC s effective spare capacity was estimated at 2.94 mb/d in August compared with 3.08 mb/d in July. Spare capacity from Saudi Arabia was assessed lower at 2.23 mb/d versus 2.4 mb/d last month but still accounts for the lion s share of the surplus at just over 75%. OPEC is scheduled to meet next on 4 December in Vienna. mb/d OPEC Crude Oil Production Jan Mar May Jul Sep Nov Jan mb/d Quarterly Call on OPEC Crude + Stock Change 1Q 2Q 3Q 4Q 2014 Saudi Arabia increased production to mb/d in August, the highest level in 32 years. July production was revised up by 200 kb/d, to 10 mb/d. Increased shipments are reportedly going to Asia, partly to replace reduced supplies from the FSU stemming from record refining runs curtailing exports and oil field maintenance work as well as lower output in China in recent months due to flooding. Saudi officials reported actual supplies to the markets were slightly lower, at mb/d, with the remaining 120 kb/d either going into storage or being fed into the new Jubail refinery network. Production from the new heavy oil offshore Manifa field is reportedly moving into storage at the Jubail refinery, which is currently processing lighter Saudis grades until the coker is brought online in 4Q13. Saudi crude for direct burn averaged around 595 kb/d in June, down about 185 kb/d from year ago levels, latest JODI data show. Demand for crude for power use this year has been reduced by an increase in use of natural gas and fuel oil. Crude for direct burn at power plants for 1H13 is down 50 kb/d to an average 415 kb/d compared with the same period in mb/d 10.5 Saudi Arabia Crude Production kb/d 1000 Saudi Implied Crude Oil Direct Burn 200% % % % % 8.0 Jan Mar May Jul Sep Nov Jan % Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Implied crude burn % Chg vs Year Ago 12 SEPTEMBER

18 SUPPLY INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT Iraqi crude oil output edged higher in August, up by just over 100 kb/d to 3.17 mb/d. July output was revised up by 70 kb/d to 3.06 mb/d, largely due to higher than forecast crude burn at power stations. Total exports rose about 165 kb/d to 2.47 mb/d in August, with southern shipments exceptionally robust while northern volumes remained constrained. Exports of Basrah crude rose by 140 kb/d to 2.29 mb/d as State Oil Marketing Co (SOMO) ramped up volumes ahead of planned maintenance work at the southern Basrah and Khor Al Amaya shipping terminals in September. mb/d 3.4 Iraq Crude Production mb/d 2.0 Basrah Oil Exports Jan Mar May Jul Sep Nov Jan Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Far East Europe US Conflicting reports for the outlook for southern exports in September and through the end of the year have forced traders and refiners to seek replacement barrels, especially in Asia where 70% of Basrah crude is normally processed. Officials initially told regular buyers that planned infrastructure work at the Gulf export terminals would cut shipments by as much as 500 kb/d in September but reversed course in mid August and said the project would be postponed. However, contractors said in September it was not possible to scale back and alter plans for the terminal work. That said, the 8 September work start date has been delayed 4 5 days due to unexpected technical issues. SOMO nominations were cut to 1.8 mb/d from 2.3 mb/d, or about 500 kb/d. Amid all the confusion regular buyers of Iraqi crude are lining up alternative supplies, which in turn has elevated price differentials for competing crudes such as Urals, Azeri and other sour grades in Europe as well as Middle East grades such as Abu Dhabi s Murban. Northern exports of Kirkuk crude were only marginally higher in August, up around 25 kb/d to 180 kb/d. Militant attacks on the key pipeline running to the Mediterranean port of Ceyhan continue to disrupt export flows, with volumes nearly halved from a 2013 peak of 330 kb/d in March. In addition, shipments from the Kurdistan region to the Kirkuk Ceyhan crude pipeline remain shut off. The ongoing dispute over payment and contract terms between Baghdad and the Kurdistan Regional Government (KRG) has been complicated by the KRG s decision to go ahead with new pipeline projects to let exports bypass the Kirkuk Ceyhan line controlled by the central government. A further kb/d of crude and condensates is moving via trucks through Turkey. Crude production in the KRG area was estimated at 140 kb/d in August. Iran s crude oil production rose to 2.68 mb/d in August, up 30 kb/d from July levels. Preliminary data show total crude imports from Iran averaged 985 kb/d in August, up just under 100 kb/d from July levels. Data for July imports were revised down to 900 kb/d compared with 1.16 mb/d reported last month. In August China, Japan, South Korea, Turkey, the UAE and Syria imported Iranian crude, tanker data show. Import volumes are based on data submitted by OECD countries, non OECD statistics from customs agencies, tanker movements and news reports. After payment problems stalled liftings in July, preliminary data show India posted the largest month on month increase in August, up 125 kb/d to around 165 kb/d. Japanese imports from Iran rose by about 50 kb/d to 225 kb/d in August while China increased volumes to 440 kb/d from around 400 kb/d in July. Last month, Syria imported crude for the third time this year, at around 30 kb/d SEPTEMBER 2013

19 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT SUPPLY mb/d Iran Crude Production Jan Mar May Jul Sep Nov Jan mb/d Iranian Crude Imports Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Total - RHS OECD EUR OECD PAC China / India Other Non-OECD Washington extended six month waivers of US sanctions in early September to Japan and the ten European Union nations also already operating under the EU s July 2012 embargo. The State Department will review waivers to China, India, South Korea, Turkey, and five other countries in December. Production from Kuwait and the UAE each declined by 30 kb/d in August, to 2.77 mb/d and 2.72 mb/d, respectively. Qatari output was unchanged at 725 kb/d. OPEC Crude Production (million barrels per day) Jun 2013 Jul 2013 Aug 2013 Supply Supply Supply Algeria Angola Ecuador Iran Iraq Kuwait Libya Nigeria Qatar Saudi Arabia UAE Venezuela Total OPEC (excluding Iraq, Nigeria, Libya and Iran) Capacity levels can be reached within 30 days and sustained for 90 days. 2 Includes half of Neutral Zone production. 3 Nigeria's current capacity estimate excludes some 200 kb/d of shut-in capacity. 4 Includes upgraded Orinoco extra-heavy oil assumed at 435 kb/d in August. Sustainable Production Capacity 1 Spare Capacity vs Aug 2013 Supply 1H13 Average Crude Supply Ecuador s production averaged 520 kb/d in August. Increased output is due to reconditioning of wells and increased drilling of horizontal wells, which has led to an upward baseline revision of 20 kb/d from May to July. Venezuelan production in August was unchanged at 2.47 mb/d. Nigerian output edged lower in August, off 20 kb/d to 1.9 mb/d. Production has stayed below 2 mb/d for the fifth consecutive month due to escalating oil thefts damaging pipeline infrastructure. In early September ENI lifted the force majeure on its Brass River crude oil production that had been in place since last March. Bonny Light exports remain under force majeure since April, affecting about 150 kb/d. Export loading schedules indicate volumes should start to recover in October and November. Angolan crude output declined by 25 kb/d to 1.7 mb/d in August. The lower output stemmed from outages at the Saturno field, part of the 150 kb/d PSVM project. As a result, BP declared force majeure on its Saturno exports on 21 August due to technical problems. 12 SEPTEMBER

20 SUPPLY INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT Libyan Oil Supplies Cascade Lower Oil production in Libya plunged to a post war low of 150 kb/d at one point in early September compared with 550 kb/d on average in August and 1 mb/d in July amid crippling labour disputes, civil unrest and political infighting among tribal militias. Exports have tumbled to just 80 kb/d versus 1.2 mb/d previously, with shipments operating only from the country s two offshore fields, Bouri and al Jurf. The burgeoning crisis, the worst since the onset of the civil war in early 2011, is weakening already fragile government institutions and choking off vital revenues. Striking workers have halted exports and forced the closure of the eastern region s oil producing fields off and on since the end of May. Tribal groups are now pushing for federalism whereby regions control export flows and revenues. In late August, Libya's largest western oilfields were closed after militants shut down the pipeline linking the fields to the ports. The two major fields affected were Elephant and El Sharara, which have a combined capacity of around 500 kb/d. After reaching a 2013 high of 1.42 mb/d in April, production has steadily was averaging 250 kb/d in the first week of September. This compares to an average of 1.4 mb/d in 2012, 460 kb/d in 2011 and 1.55 mb/d in 2010, pre civil war. The government has set up a crisis committee tasked with negotiating a settlement among the various striking workers and tribal militias in a bid to get the oil sector functioning again. The head of the government energy committee, however, said little headway had been made between government and tribal mediators as well as with an array of protest groups. The striking workers and disgruntled civilians are demanding a multitude of changes, ranging from improved pay packages and management changes to a share of the revenues and greater regional autonomy, which have combined to complicate the already challenging negotiations. Libyan Crude and NGL Production (kb/d) Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Crude Oil NGLs Total Aside from the offshore exports, Libyan terminals have been shut by port worker strikes or following occupation by members of the Petroleum Facilities Guard. Newswire reports in late August indicated that the Marsa al Brega and Marsa al Hariga terminals would return to normal by early September proved overly optimistic, and recent tanker tracking data do not support these claims. Indeed, according to tracking data, the last crude cargo to leave Libya was a 700 kb Aframax tanker which left the offshore Bouri terminal on 20 August, bound for Italy. Previous to this, the land based Zaiwa terminal was exporting regular cargos until 19 August. The country s main crude export terminal at Es Sider last exported a cargo on 26 July when an Aframax left for Spain. The country s five domestic refineries with a combined capacity of 378 kb/d have only operated sporadically since the civil war, with prolonged shutdowns reported. The largest refinery, the 220 kb/d Ras Lanuf plant, has also been closed due to worker protests and the lack of crude, as did the 120 kb/d Zawiya refinery. Latest estimates of Libyan refinery crude throughputs were around 120 kb/d in July, with the remainder of the crude exported. Recent import data indicate that the bulk of Libya s crude exports head to OECD member countries, with OECD Europe taking just under 900 kb/d so far in 2013 (June is the latest month for which OECD import data are available). To date, Italy has been Libya s largest customer. A large proportion of Libya s exports are used by refiners in the Mediterranean basin or in other European countries with pipeline access to Mediterranean import terminals. Australia is the only OECD member taking significant long haul Libyan volumes, although it has cut imports steadily since February. mb/d Libya Crude Production Jan-11 Oct-11 Jul-12 Apr SEPTEMBER 2013

21 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT SUPPLY Libyan Oil Supplies Cascade Lower (continued) Outside of the OECD, recent tanker tracking data indicate that so far in 2013, sporadic cargoes of Libyan crude have been occasionally heading to Asia, notably China, Indonesia and Thailand. OECD Crude Imports from Libya (kb/d) Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 % of total crude imports (2012) France % Germany % Italy % Spain % United Kingdom % Other OECD Europe % Total OECD Europe % Total OECD % Since Libyan crudes are light and sweet in nature, they have high yields of gasoline, low sulphur diesel and jet fuel, which make them highly sought after by European refiners. They are also difficult to replace since there are few crudes of similar quality. The closest quality replacement crudes for the lost Libyan streams of Es Sider, Sarir, El Shahara and Bu Attifel are Ekofisk and Brent crudes from the North Sea, BTC Blend from the FSU, Bonny and Qua Iboe from Nigeria and Algerian Saharan Blend. In the last few month, due to seasonal maintenance in the North Sea, the output of Ekofisk and Brent has been constrained, helping to propel North Sea Dated prices to their recent highs. It is also worth noting that during the 2011 Libyan civil war European refiners were forced to turn to incremental sour supplies made available by OPEC members, notably Saudi Arabia, which were not a likefor like replacement for lost Libyan crudes. Arab 2.0 Medium Basrah Light Arab Light 1.0 Brazil Arab Extra Light Roncador Es Sider 0.5 Forties Saharan Qua Iboe Brent Cusiana Bonny Blend Sarir 0.0 BTC El Shahara Bu Attifel API Additionally, the increasing sweet sour differentials over 2011 also drew in limited supplies to Europe of light, sweet Latin American and West African crudes, which would otherwise have been used by US Gulf Coast refiners. % Sulphur Selected Crude Oil Export Streams by Quality Kirkuk 12 SEPTEMBER

22 SUPPLY INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT Non-OPEC Overview Total non OPEC supply fell by an estimated 510 kb/d in August, mostly on declines in the North Sea and in China, but at 54.5 mb/d it remained 1.5 mb/d higher than a year earlier. Despite extensive maintenance and outages in the North Sea and, to a lesser extent, offshore Brazil, as well as floods in China, non OPEC supply is projected to have increased by about 520 kb/d in 3Q13 on the previous quarter. While the increase partly reflects seasonal gains in biofuel supply, other non OPEC supply still managed an increase of nearly 190 kb/d for the quarter. Non OPEC supply growth is forecast to pick up momentum in 4Q13. As in previous editions of this Report, North America has been at the centre of recent quarterly non OPEC supply gains, with Canada and the US having a combined total liquids growth of 510 kb/d in 3Q13. Strong increases in these two countries in both US LTO and Canadian synthetic crude oil are expected to continue through 4Q13. Political turmoil in the Middle East and North Africa mb/d Total Non-OPEC Supply, y-o-y chg 2.0 remains a focus of concern for the supply outlook. 1.5 Although Syria s oil production has been reduced to only a small fraction of that country s pre civil war output for 1.0 some time, concerns that the conflict could spill over 0.5 into other countries of the region have affected the oil 0.0 market. Yemen, another non OPEC producer in the Middle East, experienced several attacks on pipelines -0.5 that temporarily curtailed the country s already reduced -1.0 output in the last few weeks. The political turmoil in 1Q10 4Q10 3Q11 2Q12 1Q13 4Q13 3Q14 Egypt has so far not affected the country s Other North America Total approximately 700 kb/d of production but concerns remain, especially given a recent failed attack on a container ship in the Suez Canal (see Prices section). Legitimate as they may be, however, those concerns are somewhat offset by the outlook for generous non OPEC output growth for the remainder of That outlook reflects a variety of factors, including the end of the North Sea and North American maintenance season, improved export certainty for South Sudan and, broadly speaking, the results of massive investment in non OPEC supply not just in North America but also in places ranging from offshore Brazil to Kazakhstan. Furthermore, sustained high prices look set to keep this investment wave going. Global E&P spending is poised to reach $678 billion in 2013 according to Barclays Capital, a fourth consecutive record high (though it must be mentioned that costs are also rising, particularly on complex projects). Continued high prices are perhaps even beginning to crack open traditional strongholds of resource nationalism to foreign investment. It is conventional wisdom that high oil prices give oil exporter governments increased leverage with IOCs. In recent years, this has discouraged investment in host countries and pushed it to higher cost, open market economies such as the US. But, as noted by some industry observers, we may now be witnessing the beginning of a reverse effect: as high cost production in nonconventional, deep water and extreme environments becomes more economically viable, leverage swings back to companies which now have alternatives to conventional plays wherein governments grant low rates of return. As discussed below (see Mexico s Proposed Energy Sector Reforms a Watershed for the Energy Industry? ), this forces some host countries to compete to maintain or regain market share and attract investments. In any case, we continue to foresee non OPEC supply growth in the forecast period as past investment comes to fruition, and we have adjusted our outlook for non OPEC supply upward by 60 kb/d for 2013 and by 260 kb/d for SEPTEMBER 2013

23 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT SUPPLY OECD North America US July preliminary; Alaska actual, other states estimated: US crude oil production averaged 1.1 mb/d higher in July 2013 than in July 2012, at 7.5 mb/d. Preliminary weekly figures for August show production holding steady, with declines in Alaska compensated by continued growth in tight oil at the Eagle Ford (where over 5,700 oil and gas wells have been drilled since 2008) and Permian basins in Texas. Likewise, 3Q13 crude oil production is forecast at 7.5 mb/d. Disruption risks in the US Gulf of Mexico at the peak of the hurricane season make for a forecast of a slight decline in September. On the other hand, the development of new shale plays, such as the Mississippian Woodford Trend in Oklahoma and Kansas, augurs continued production growth into the medium term, when some existing shale oil plays may begin to decline. mb/d US Total Oil Supply - Yearly Change Q12 3Q12 1Q13 3Q13 1Q14 3Q14 Alaska California Texas Other Lower-48 Gulf of Mexico NGLs North Dakota Other Total Pipeline and rail transport capacity continues to expand and thereby accommodate production growth, with about 500 kb/d of crude oil pipeline capacity added in the US in The 700 kb/d capacity Gulf Coast pipeline from the Cushing hub to Houston is targeted for completion by the end of the year. Alaska crude production fell below 500 kb/d in June and is forecast to remain below that level through Additional US West Coast refineries, such as the Puget Sound plant in Washington state, are exploring the possibility of rail transport of North Dakota crude to make up for declining Alaska tanker shipments. Tesoro already has a 120 kb/d rail offloading facility at its Anacortes refinery, also in Washington state. Including biofuels (ethanol and biodiesel), the US is set to become the leading non OPEC liquids producer as of 3Q13. Stripping out biofuels and refinery gains, however, puts the US 3Q13 total liquids production forecast at 10.3 mb/d, second only to that of Russia, which it trails by just 0.5 mb/d. Strong growth of US natural gas liquids production, estimated at 140 kb/d y o y for 3Q13, looms large in these gains. NGL production is forecast to show quarterly growth through 4Q14, when it is expected to reach about 2.75 mb/d. Five gas processing plants have come online this year drawing on the Marcellus/Utica play, and seven more are scheduled to come online by the end of 2013, increasing processing capacity by 110 million cubic metres per day. While there is currently adequate demand to absorb additional propane and butane supply, finding an outlet for the additional ethane coming from liquids rich Marcellus Shales has proved a challenge, as ethane rejection into dry gas now exceeds pipeline capacity to handle it. Two new infrastructure projects are designed to address this constraint: the 50 kb/d capacity Mariner West (I and II) ethane pipeline to petrochemical facilities in Sarnia, Ontario (Canada), which began being filled in August, and the 190 kb/d capacity Atex ethane pipeline to the Texas Gulf Coast, which is expected to come online in 1Q14. Canada Newfoundland July actual, others June actual: Despite a slight decline in conventional crude oil production in June due to maintenance at Hibernia offshore (down 50 kb/d for the month) and slight declines in Alberta and Saskatchewan, total liquids production increased by about 70 kb/d for the month on strength of expanded bitumen and synthetics production. With maintenance at White Rose only knocking off 10 kb/d in July and forecast growth in bitumen of 60 kb/d, liquids production is expected to have increased by nearly 300 kb/d m o m as most synthetics operators boosted output. Even with maintenance, Syncrude Mildred Lake still achieved 180 kb/d for the month. We are forecasting that Canadian oil production will have surged to a new record of 4.1 mb/d in August, slightly above the previous record output of December Production of synthetic crude oil led the gains and, at 12 SEPTEMBER

24 SUPPLY INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT 1.05 mb/d, also reached a new record, as several plants returned from June and July maintenance and work on Suncor s upgrader 2 unit was delayed until September. Crude oil production (excluding synthetics but including mined bitumen) is forecast at 2.4 mb/d for 3Q13, up by more than 300 kb/d y o y. Maintenance offshore Newfoundland began in June, cutting production of Hibernia by 50 kb/d for that month, and White Rose output by 10 kb/d in July. Extensive maintenance on the Terra Nova FPSO (which produced 60 kb/d in July) began this month. Given the record output of synthetic crude oil, including Suncor s projects exceeding 400 kb/d for the first time ever in August, our forecast for Canadian total liquids production has been increased by over 80 kb/d for 2014 compared with last month s Report. Total Canadian supply is now expected to reach an average of 4.2 mb/d for 2014 (a 200 kb/d y o y rise). In anticipation of this and other output increases, one investment bank has calculated that total planned capital spending on rail terminals, tanker cars, and associated infrastructure in Western Canada in the years will reach about $5.7 billion. mb/d Canadian Oil Sands Output Q11 1Q12 1Q13 1Q14 Synthetic Crude In Situ Bitumen Mexico July actual: Pemex data shows that crude oil production in July was 2.48 mb/d, a decline of about 40 kb/d m o m. Weekly numbers show the mainstay offshore KMZ complex 30 kb/d lower for the month. Our expectation is of continued gradual decline in crude oil production until the end of the forecast period, with 2013 down 40 kb/d y o y and kb/d lower. The decline is expected to be halted only in the last quarter of 2014, as Pemex plans to have a record 47 jack up rigs in place in the shallow water GOM by mid Pemex has had some success drilling in the deepwater Perdido foldbelt play, where it has discovered an estimated 480 million barrels of oil, but last month the government announced a program of reforms in the energy sector designed to increase oil production in the medium term that would, if successfully implemented, bring other companies to the Mexican deepwater. Mexico s Proposed Energy Sector Reforms A Watershed for the Energy Industry? On 12 August 2013, Mexican President Enrique Peña Nieto announced plans to change the country s constitution (which greatly restricts foreign and private sector participation in the energy sector) so as to allow a number of proposed reforms to the oil and gas, as well as electricity, sectors. Mexico s oil sector has been famously closed off to non Pemex ownership participation since 1938, when foreign oil companies were expropriated by the state and the 100% state owned oil company Petróleos Mexicanos (Pemex) was created. Pemex became the country s largest company, and has since then single handedly developed Mexico s large oil and gas industry. These reforms, in terms of the oil sector, do have the potential to change the production outlook for the country if things go according to the government s plans. While we will not release another Medium term Oil Market Outlook until next year, the successful implementation of the main reforms below would be a key factor in lifting our oil production outlook for the latter half of this decade. In terms of the reforms delivering economic benefits for Mexico, any reduction in revenues in the short run from Pemex has to be balanced with the need to maintain, if not expand, oil derived revenues in the long run. Although Mexico became a net importer in the 1950s, new discoveries in the 1970s and their successful exploitation, including the giant Cantarell field, subsequently made the country a major world producer and exporter. Pemex is also one of the most important contributors to the budget of the federal government, providing about 40% of receipts in recent years. However, since 2004, oil production has declined while domestic consumption continues to grow, eating into net exports. Deprived of much of its oil revenues, Pemex has been forced to take on large amounts of debt. The company also maintains a monopoly in the downstream sector extending to retail sales SEPTEMBER 2013

25 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT SUPPLY Mexico s Proposed Energy Sector Reforms (continued) There has been concern in Mexico for some time about the implications of declining production and revenues (particularly if prices were to return to the average of the last decade), as well as cross subsidies for the downstream sector and the need to import natural gas and gasoline from the US. Likewise, the fact that Pemex has been unable to develop the country s deepwater offshore as has been done in Brazil and the US Gulf of Mexico has also been noticed by the government. Figure 1 shows the enormous development of the US GOM, including deepwater, whereas the Mexican GOM has only a few (though large) shallow water developments. USA USA MEXICO Gulf of Mexico MEXICO Selected wells Major oil and/or gas pipeline This map is without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Figure 1 Source: IEA Geology, of course, does not observe national borders, and the shale boom that has transformed the US oil and gas industry has so far passed Mexico by. Formations such as Eagle Ford in Texas, which produces some 1 mb/d of light tight oil and large amounts of gas, extend into Mexico (the Boquillas formation in the Burgos Basin), yet only a small amount of gas has been developed for production by Pemex on the Mexican side of the border (see Figure 2), with most wells still in the exploratory stage. Given the need for expertise and investment to develop deepwater and shale resources, as well as more generally to enhance the sector (including the downstream), the government has proposed a number of concrete reforms aiming to: Achieve replacement rates for proven reserves of oil and gas in excess of 100% Obtain crude oil production of 3 mb/d by 2018 and 3.5 mb/d by 2025 Obtain natural gas production of 226 million cubic metres per day (mcm/d) in 2018 and 295 mcm/d in 2025 (2012 production was 130 mcm/d) The following are the main reform proposals affecting the oil sector: Companies other than Pemex would be allowed to participate in the sector through the use of profitsharing contracts [contratos de utilidad compartida] that would not give companies explicit ownership of reserves but rather a revenue share from the government. Such contracts are expected to give a better rate of return than service contracts that are currently available and allow companies to report them in their financial statements as assets with expected cash flows. 12 SEPTEMBER

26 SUPPLY INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT Mexico s Proposed Energy Sector Reforms (continued) USA Eagle Ford Sabinas Basin MEXICO Burgos Basin Gulf of Mexico Eagle Ford shale oil/gas Boquillas formation Pacific Ocean Tampico Prospective basin Basin Other basin/uplift/platform This map is without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Figure 2: Map based in part on US EIA/Advanced Resources International Inc. assessment Pemex would be restructured from four divisions into two: Exploration and Production, and Industrial Transformation, which correspond to the upstream and downstream sectors. A relatively small overarching corporate executive office would remain. Exploration and Production will compete with other companies for contracts on projects, but would remain 100% state owned. All subsoil assets would also remain state owned, even with other companies participating in and operating upstream projects. Industrial Transformation would see its sector opened up to private sector companies in all areas, and these companies will be able to own assets in the sector, from pipelines to retail gasoline stations. How this will work in the context of regulated petroleum product prices has yet to be specified. Pemex would have a new fiscal regime that involves a lower government take (e.g. lower royalty rates) and a more flexible scheme so that Pemex can reinvest adequately. Any surplus that remains (because of the lower initial payment) could be used for reinvestment in the company or be used for social spending, with the government, and probably the Congress, making a cost benefit assessment. The fiscal regime for other upstream companies would depend on their contract. Regarding Exploration and Production, Pemex s role would be redefined to focus on its own operations rather than the management of the entire sector. Some functions would likely be transferred to the Ministry of Energy and the National Hydrocarbons Commission. The proposal also discusses increasing the transparency of the sector in general, and of Pemex in particular. The creation of two additional functional departments for the overarching Pemex executive, Procurement and Logistics. These two areas would use synergies and eliminate duplication in order to improve purchasing and relations with suppliers. Logistics for the company will be integrated and there will be increased transparency in transport and storage costs. It is clear that, if the necessary constitutional changes are approved, there is a great deal of secondary legislation and regulations that would need to be put into effect in order to enable these reforms to be implemented. The details of such legislation can have an important effect on how the reform would actually be implemented and whether it not only expands production, but also delivers economic benefits. There are also a number of political hurdles, with the government needing the support of at least one of the two other major political parties in order to pass the necessary legislation (and opposition parties have put forward their own proposals). There are still many issues to be resolved, then, before the government s $10 billion target in additional annual investment in the oil sector through 2025 can be achieved SEPTEMBER 2013

27 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT SUPPLY North Sea Preliminary production figures indicate that Norwegian total liquids production exceeded expectations in July, rising by about 270 kb/d to nearly 2 mb/d as Teeside fields came back online and NGL production reached its highest level since December 2012, at over 310 kb/d. Maintenance both planned and unplanned is expected to take August total liquids production back down to 1.5 mb/d, however, including crude oil production of 1.2 mb/d. On the Sleipner Frigg system, Marathon shut the Alvheim field for nine days of maintenance, as well as the Vilje and Volund fields feeding into the Alvheim FPSO. Statoil has announced that equipment problems at Troll have not been resolved, affecting mostly gas output, but also NGL and condensate output on Norway s largest gas field. The Kvitebjorn gas field, another significant producer of NGLs and condensate, remained offline for most of August because of equipment problems when returning from scheduled maintenance that had begun in July. Visund in the Statfjord Gullfaks area also had an unplanned outage in August. Hence, 3Q13 total liquids production is forecast at 1.7 mb/d, about 50 kb/d lower than 3Q12, and production for the year is expected to be over 100 kb/d lower y o y. The UK sector, on the other hand, looks set to decline even faster in percentage terms in As noted in a recent report by industry association Oil & Gas UK, platforms in the UK offshore oil and gas sector have only been producing about 60% of the time in recent years, compared to 80% of the time in 2004, due to the need for greater maintenance and the increased incidence of unplanned outages. Another important factor affecting output is that when mature fields come back from maintenance or other outages, they take longer on average to ramp up production again. Although new fields are being developed or redeveloped, such as Balloch and Gryphon that came online in May, and Alma now expected for 1Q14, these are comparatively small (10 kb/d, 20 kb/d and 20 kb/d, respectively) and fail to offset steep declines at many mature fields. Alma has been delayed by a quarter. July crude oil production is expected to be about 800 kb/d, a 3% increase on June. However, outages such as a five day shutdown of the Forties pipeline at the beginning of August and technical problems that halted production at Huntington, as well as other planned maintenance, indicate lower production for 3Q13, such that total liquids will fall by about 100 kb/d compared with 2Q13, and 20 kb/d below 3Q12, to just under 800 kb/d. BFOE production is estimated at 720 kb/d for BFOE Loadings & Production August and 770 kb/d for September. Although 1,100 loadings in the past have often lagged production 1,000 levels by a month, lately loadings have more 900 closely matched the same month s production. 800 However, a number of delays to loading programmes for August and September, and already announced revisions to the October schedule, show that initial loading plans are still 500 not always indicative of actual production figures May-12 Sep-12 Jan-13 May-13 Sep-13 BFOE loadings* BFOE production for the month. Scheduled September BFOE *Source: Reuters loadings have already been revised downward by 60 kb/d. BFOE has remained well below 900 kb/d since June, putting price pressure on the Brent marker. Non-OECD Latin America Brazil July preliminary: Brazilian crude oil production fell by over 100 kb/d in July, to 1.97 mb/d, falling short of expectations for continued monthly growth. Supplies posted strong growth in June, and Petrobras had indicated that, with a reduction of the maintenance experienced in 1H13 and new units coming online in 4Q13, production remained on track to meet its objective of 2 mb/d total liquids for 12 SEPTEMBER

28 SUPPLY INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT (About 93% of Brazilian oil production is operated by Petrobras.) Production declines in July stemmed in part from Marlim Sul, Brazil s largest oilfield, which declined by 40 kb/d m o m, as the P 40 platform had 15 days of scheduled maintenance. A number of other offshore fields had smaller drops. Despite steady output of total liquids in 3Q13 compared with 2Q13 s 2.1 mb/d, we still expect 4Q13 to show strong growth of nearly 150 kb/d. The Cidade de Paraty FPSO in operation on the Lula field is expected to add another 40 kb/d by 4Q13. Other projects to add production include the Papa Terra P 63 FPSO expected to come online in October and the P 55 platform on the Roncador field in December. In August, a Canadian company began the first test drills of a shale oil play in Brazil at the onshore Recôncavo basin. Asia China July preliminary: After y o y 1H13 growth of nearly 90 kb/d, Chinese oil production slumped by 200 kb/d m o m in July to 4.1 mb/d as a massive flood in Shaanxi affected PetroChina s (CNPC) Changqing field as well as production from China s fourth largest oil company, Shaanxi Yanchang mb/d Petroleum, which has its base of operations in the province. A major CNPC oil pipeline ruptured as well because of the floods. It is expected that production will show a further drop in August, as major floods in Heilongjiang province affected China s largest oilfield, Daqing. About wells were shut down on the field, and 680 new wells will have their production start delayed. August production is forecast to fall to just under 4.0 mb/d, marking the first time since October 2011 that production has fallen below this level. CNOOC continues to invest in smaller offshore fields such as Weizhou 12 8W and Wenchang 19 1N in the Western South China Sea, and the Suizhong 36 1 Phase II and Qikou 18 1 projects in Bohai Bay. These developments, which are expected to come online in 4Q13, will compensate in part for continued declines at mature onshore fields. Africa China Total Supply Jan Mar May Jul Sep Nov Jan forecast 2013 mb/d 2.60 South Sudan: Since last month s Report, economic and political agreements have been reached between the governments of South Sudan and Sudan (3 September) such that the export pipeline to the Sudanese oil terminal at Port Sudan is expected to remain open and unimpeded. Crude oil production in South Sudan had been cut to about 140 kb/d prior to 3 September agreement in order to protect equipment and reservoirs in anticipation of a possible pipeline closure. South Sudan government ministers have announced that production will quickly ramp up to 200 kb/d by October and eventually 350 kb/d by the end of However, given the various rapid shut ins for political reasons and other less thanoptimal treatment of field reservoirs historically, this target may be overly optimistic in the absence of additional investment. Hence, we are forecasting a more gradual ramp up in the coming months. Another positive development for greater oil flows is that the two governments seem to have resolved payment issues, and South Sudan has reported that it has received $300 million from Sudan for crude sales since April. South Sudan, however, continues to explore potential alternative new pipeline export routes through neighbouring countries to the south Brazil -Total Supply Jan Mar May Jul Sep Nov Jan forecast 2013 forecast SEPTEMBER 2013

29 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT SUPPLY Former Soviet Union Russia August preliminary: Total liquids production increased by over 100 kb/d m o m in August, with much of that increase coming from condensates and NGLs. Crude oil production rose slightly, to about 10.1mb/d, though with the increase in Saudi production in August, Russia has dropped to being the world s second largest crude oil producer for the month. Notable developments in August include a return from maintenance on Sakhalin 1; a return to normal levels of condensate production by Gazprom; the launch of the Trebs field by Bashneft; and a 60 kb/d increase in NGL production as natural gas production increased. Gazprom s oil unit, Gazprom Neft, has managed to increase production 10 kb/d y o y despite some mature fields in its portfolio, as fields in the Orenburg region have boosted output. Most large Russian producers are managing to maintain production at remarkably even levels month tomonth, and our forecast is for total liquids production to remain at 10.8 mb/d for every quarter of the forecast period. September crude oil production is forecast to dip slightly as Sakhalin 2 undergoes maintenance taking at least 50 kb/d offline. Gazprom is expected to further boost condensate/ngl production next month, and subsidiary Gazprom Neft brought online the Novy Port oil field in the gas rich Yamal Peninsula in July. kb/d Total FSU Supply - Annual Change Looking further ahead, given stagnant production expected for 2014, two projects are underway to attempt to exploit Russia s very large but nearly untouched shale oil reserves. According to a US government study, Russia s estimated recoverable shale oil resources of 75 billion barrels are the largest in the world. Russian producers have teamed with foreign companies to bring expertise on shale oil development. Gazprom Neft recently announced first crude flows from a pilot project in its Krasnoleninsky deposit in West Siberia and is studying the shale oil potential of the Verkhne Salymskoye field with Royal Dutch Shell. Rosneft is working with ExxonMobil and Norway s Statoil on another deposit. The Russian government has announced sizable reductions in the Mineral Extraction Tax on unconventional fields to stimulate production, starting this month, though challenges remain, such as a lack of small risk taking companies, geology that is potentially more difficult than North American plays, and a lack of infrastructure and equipment. Kazakhstan July preliminary: Kazkahstan s production achieved 1.7 mb/d in July, a 30 kb/d increase over June led by a 45 kb/d rise at Tengiz. Some maintenance is believed to have taken place in August on the Chevron operated project, which will lower the country s output for the month. Hence, 3Q13 production is forecast at 1.6 mb/d. The development of the Kashagan field, one of the world s largest (13 billion barrels of reserves) but most complex, has long been at the centre of the country s oil industry. Initially targeted for 2005 but having experienced numerous delays and cost overruns, political and economic pressure to start production is enormous. It is generally considered to be the most expensive oil project ever, with costs over $100 billion. ENI, a shareholder in the operating consortium, announced that production will finally begin this month. As the consortium will lose the right to certain compensation under its agreement with the government if production is not started by 1 October, it will likely achieve at least a low level of production by the deadline, even if at non commercial levels initially. An additional indication that production is imminent is that the operating consortium reportedly had reached an agreement to use the Atyrau Samara pipeline to export the crude, starting this month. We are forecasting a lower level of production for the first full month, October, than the 75 kb/d indicated by ENI. The consortium plans for Phase 1 to reach design capacity of 370 kb/d by the end of Given past experience with Kashagan, our forecast remains conservative, at only 10 kb/d for the first month, but may be adjusted depending on production developments. Successful development of Kashagan will be key to the FSU achieving net production growth in 2014, instead of a flat level as is currently forecast. 12 SEPTEMBER

30 SUPPLY INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT FSU Net Exports of Crude & Petroleum Products (million barrels per day) Q2012 4Q2012 1Q2013 2Q2013 May 13 Jun 13 Jul 13 Latest month vs. Jun 13 Jul 12 Crude Black Sea Baltic Arctic/FarEast BTC Crude Seaborne Druzhba Pipeline Other Routes Total Crude Exports Of Which: Transneft Products Fuel oil Gasoil Other Products Total Product Total Exports Imports Net Exports Sources: Argus Media Ltd, IEA estimates 1 Transneft data exclude Russian CPC volumes. 2 Includes Vacuum Gas Oil FSU net exports remained flat with the previous month s low level at 9.64 mb/d in July but are set to rebound steeply in September and October as Russian refineries embark on heavy maintenance. Crude exports in July edged up marginally by only 40 kb/d to 6.3 mb/d as domestic refinery throughputs remained strong, reducing the availability of crude for export. Accordingly, most major export routes experienced little or no monthly growth. One bright spot was the Druzhba pipeline where flows hit 1.1 mb/d, their highest since May On the other hand, deliveries of Urals via Russia s Baltic ports remained depressed at 1.1 mb/d ( 50 kb/d m o m), their lowest since August Recent port loading schedules indicate that volumes were similarly constrained during August with a rebound not expected until September, when volumes are set to surge to 1.6 mb/d as Russian refineries enter turnarounds. In the East, Rosneft has begun to ship extra crude to China under the terms of its recently inked supply deal (see A New Supermajor: How the TNK BP Acquisition Could Affect Trade Flows, in OMR 11 April 2013). ESPO shipments (Chinese spur plus Kozmino) reached a record 800 kb/d in July with approximately 500 kb/d destined for China. The ESPO spur accounted for a record 340 kb/d of this with tanker tracking data indicating an additional 160 kb/d left Kozmino for Chinese ports. This represented 35% of total crude exports via the port. 0 Jan-10 Jan-11 Jan-12 Jan-13 China Total Kozmino Refined product exports dropped by 30 kb/d compared to June led by falls in gasoil (40 kb/d) and fuel oil (60 kb/d) after domestic demand rose. Nonetheless, product exports remain a healthy 600 kb/d above July 2012 as a number of refinery expansion projects have been completed in the intervening period with Russian refinery throughputs remaining at close to record levels. Shipments of other products including gasoline and naphtha increased by 70 kb/d to 560 kb/d, their highest since May This prompted the Russian administration, mindful of a return to the light product shortages which blighted the country in summer 2011, to ask domestic oil companies to build stock of light products and to consider the needs to domestic markets ahead of export markets. Although there has been no export ban, this development could curb shipments of light products over coming months. kb/d ESPO Exports to China via Komino source: ArgusMedia Ltd, Lloyds Marine intelligence SEPTEMBER 2013

31 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT OECD STOCKS OECD STOCKS Summary OECD commercial total oil inventories built by 8.0 mb to stand at mb by end July. Since this rise was weaker than the five year average build for the month, the deficit of OECD holdings to fiveyear average levels widened to 65.0 mb, marking the largest deficit since October Refined product inventories built seasonally by 23.4 mb to cover 30.7 days of forward demand at end July, a rise of 0.6 days on end June and 0.2 days above twelve months previous. Preliminary data suggest that OECD inventories drew by a counter seasonal 14.2 mb in August as a stronger than seasonal 19.3 mb fall in crude oil stocks outweighed a weaker than seasonal 5.1 mb build in refined products. Crude stocks at the Cushing, Oklahoma storage hub plunged by a further 5.4 mb in August. Stocks at the terminal now stand at 34.8 mb, their lowest level since February mb 100 OECD Industry Total Oil Stocks Relative to Five-Year Average mb 1,050 OECD Crude Oil Stocks 50 1, Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Asia Oceania Americas Europe OECD 900 Jan Mar May Jul Sep Nov Jan Range Avg OECD Inventory Position at End-July and Revisions to Preliminary Data OECD commercial total oil inventories built by 8.0 mb to stand at mb by end July. Since this rise was weaker than the 21.6 mb five year average build for the month, the deficit of OECD holdings to fiveyear average levels widened to 65.0 mb, from 51.4 mb at end June. The deficit now stands at its widest since October Total oil stocks rose by 9.8 mb and 5.0 mb in OECD Europe and OECD Asia Oceania, respectively, led by seasonal builds in refined products. Meanwhile in OECD Americas, following six yearhigh refinery runs, stock builds were tempered by a steep 19.0 mb draw in crude oil and a counterseasonal 3.0 mb draw in NGLs and feedstocks holdings. Despite elevated refinery activity, strong seasonal demand and lofty exports tempered regional refined product builds. Preliminary Industry Stock Change in July 2013 and Second Quarter 2013 July 2013 (preliminary) Second Quarter 2013 (million barrels) (million barrels per day) (million barrels per day) Am Europe As. Ocean Total Am Europe As. Ocean Total Am Europe As. Ocean Total Crude Oil Gasoline Middle Distillates Residual Fuel Oil Other Products Total Products Other Oils Total Oil Other oils includes NGLs, feedstocks and other hydrocarbons. 12 SEPTEMBER

32 OECD STOCKS INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT Total OECD refined product inventories built by a seasonal 23.4 mb led by increases in middle distillates (+14.5 mb) and other products (+11.5 mb), which offset dips in motor gasoline ( 1.8 mb) and residual fuel oil ( 0.7 mb). All told, refined products covered 30.7 days of forward demand at end July, a rise of 0.6 days on end June and 0.2 days above a year earlier. Revisions versus 9 August 2013 Oil Market Report (million barrels) Americas Europe Asia Oceania OECD May-13 Jun-13 May-13 Jun-13 May-13 Jun-13 May-13 Jun-13 Crude Oil Gasoline Middle Distillates Residual Fuel Oil Other Products Total Products Other Oils Total Oil Other oils includes NGLs, feedstocks and other hydrocarbons. End June OECD inventories were revised down by 12.2 mb compared to data presented in last month s Report. The revision was concentrated in US crude oil inventories where final monthly data came in 8.2 mb lower than preliminary data suggested. Elsewhere, OECD European inventories were adjusted downwards by 3.6 mb/d while Asia Oceania was revised 0.9 mb higher. Preliminary data suggest that OECD inventories drew by a counter seasonal 14.2 mb in August as a stronger than seasonal 19.3 mb fall in crude oil stocks outweighed a weaker than seasonal 5.1 mb build in refined products. Indeed, if this slight build in products is confirmed by final data, it would be far weaker than the 21.2 five year average build for the month. Product holdings rose following the continued restocking of middle distillates, although the 3.7 mb rise was weaker than the 18.1 mb average build for the month. Meanwhile, other products rose by a seasonal 7.4 mb and motor gasoline drew by a seasonal 5.6 mb. On a geographic basis, OECD Asia Oceania posted a slight 0.9 mb rise while OECD Europe and OECD Americas posted counter seasonal draws of 14.4 mb and 0.6 mb, respectively. Analysis of Recent OECD Industry Stock Changes mb 550 OECD Americas Crude Oil Stocks days 32 OECD Americas Total Products Stocks Days of Forward Demand Jan Mar May Jul Sep Nov Jan Range Avg Jan Mar May Jul Sep Nov Jan Range Avg OECD Americas Industry inventories in OECD Americas drew by 6.8 mb in July in sharp contrast to the 13.1 mb five year average build for the month. Stocks were led lower after crude oil holdings plummeted by 19.0 mb as regional refiners, notably in the US, responded to healthy margins by raising runs. Regional throughputs were also augmented by the return to service of a number of refineries, notably BP s Whiting refinery in the midcontinent. In all, regional holdings of crude, NGLs and feedstocks plunged by a combined SEPTEMBER 2013

33 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT OECD STOCKS 22.0 mb, far stronger than the 3.8 mb five year average draw for the month. Despite the stock draw, regional holdings of primary feedstocks remain 6.0 mb above five year average levels. Higher refinery throughputs did not translate into a commensurate build in refined products, stocks of which increased seasonally by 15.2 mb. In addition to seasonally higher demand, it is likely that product builds were tempered by continued high exports from the US which, according to preliminary data, remained close to 3 mb/d during July. Nonetheless, the build in products was driven by the continued seasonal restocking of propane (+10.1 mb) here included under other products, inventories of which now stand 21.6 mb above average levels. Excluding other products, inventories of other refined products stand 10.2 mb in deficit to average levels. Other builds were posted in middle distillates (+4.1 mb) and motor gasoline (+1.4 mb) while fuel oil holdings inched down by 0.4 mb. At end July, regional refined products stocks covered 29.9 days of forward demand, 0.7 day above end June. mb US Weekly Industry Crude Oil 410 Stocks Source: EIA 270 Jan Apr Jul Oct Range yr Average mb US Weekly Cushing Crude Stocks Source: EIA 10 Jan Apr Jul Oct Range yr Average Preliminary weekly data from the US Energy Information Administration indicate that US industry total oil inventories slipped by a further 0.6 mb over August. The same pattern of high refinery throughputs drawing down crude stocks while strong seasonal demand and exports kept product builds in check was evident over the month. As such, inventories of crude oil, NGLs and other refinery feedstocks declined by a combined 5.1 mb, in contrast to a 0.2 mb five year average build. Crude oil declined by a strongerthan seasonal 3.3 mb with the build concentrated in PADD 2 as stocks at the Cushing, Oklahoma storage hub plunged by 5.4 mb. Cushing stocks now stand at 34.8 mb, their lowest level since February 2012, thanks to high regional refinery throughputs and increasing transfers to PADD 3. Refined product holdings rose by 4.4 mb led by increasing other products which surged by a stronger than seasonal 8.8 mb. Elsewhere, middle distillates built by a seasonal 4.4 mb while motor gasoline drew by a strongerthan seasonal 7.6 mb. European Industry Stock Draws in Perspective Supply outages in the North Sea and Libya and recent low exports of Russian Urals via Baltic ports have cast a spotlight on the tightness of oil inventories in OECD Europe. At end July, European commercial inventories stood at 884 mb, 41 mb below 12 months previous and 81 mb in deficit to the five year average for the month. A 91 mb deficit posted at end June was the widest since IEA monthly records began in Looking at the data in more detail, however, part of the deficit can be pinned on the reclassification of 20 mb of Austrian stocks by the national administration. These mb Position of OECD European Commercial Oil Stocks Compared to Five-Year Average Levels surplus -50 deficit SEPTEMBER

34 OECD STOCKS INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT European Industry Stock Draws in Perspective (continued) stocks were previously counted as industry stocks but as of January 2013 are now classified as government stocks. The new methodology was applied following the 1 January 2013 implementation of the European Union Oil Stockholding Directive (2009/19/EC), resulting in the reclassification of a combined 7 mb of crude oil NGLs and feedstocks and 13 mb of refined products. According to the Austrian administration, most importing companies prefer to hold their inventories at the private, non profit stockholding company ELG. Under the terms of the Directive, ELG has been designated as Austria s Compulsory Stockholding Entity (CSE) that means that its stocks are now classified as public or stockholding agency stocks and correspondingly reported as government stocks here. The relabelled stocks have not physically changed hands, nor have they been lost to the market. Rather, the change is due to new accounting procedures. As a result of the new classification, Austrian industry crude stocks are now reported as zero. It would be wrong however to conclude that OMV s Schwechat refinery manages to operate without maintaining any crude oil stocks at all. In reality, OMV uses stocks in excess to its emergency obligation (despite their being declared as ELG stocks) as operating stocks. Since the reclassification only began with January 2013 data, direct comparisons of 2013 total OECD and OECD European data with the previous year and the five year average are somewhat misleading. The Austrian administration is unable to provide revisions previous to 2013 since the portion of stocks held by ELG was collected under a different methodology. For the purpose of comparing 2013 commercial inventories with the historical dataset, the two graphs below show 2013 stocks as calculated according to the previous methodology. In other words, 20 mb has been taken out of government stocks and returned to commercial inventories across 2013 (data presented elsewhere in the Report and in the accompanying Monthly Oil Data Service remain unadjusted and follow the new methodology for 2013). This has the net effect of lifting end July commercial inventories to 905 mb in OECD Europe and mb in the OECD as a whole. In addition, the deficit to five year average levels has narrowed to 62 mb and 46 mb for OECD Europe and the total OECD, respectively. In OECD Europe, this leaves the deficit at levels similar to those posted in 4Q12. For the OECD as a whole, although stocks stand below last year s level and the five year average, they remain comfortably within the seasonal range. mb 2,850 OECD Commercial Total Oil Stocks* mb 1,050 OECD Europe Commercial Total Oil Stocks* 2,750 1, , ,550 Jan Mar May Jul Sep Nov Jan Range Avg *includes 20 mb previously classified as government stocks using old methodology 850 Jan Mar May Jul Sep Nov Jan Range Avg *includes 20 mb previously classified as government stocks using old methodology OECD Europe Commercial total oil stocks in OECD Europe increased by 9.8 mb in July to 884 mb. This was much steeper than the 0.1 mb five year average build, narrowing the region s deficit to the average levels to 81mb from a record 91 mb at end June. An 8.8 mb counter seasonal rise in crude oil holdings drove the monthly rise, surprisingly given higher regional refinery throughputs, supply disruptions in Libya and Iraq and seasonally lower FSU exports. Regional crude oil holdings now amount to 311 mb, 2.6 mb below July 2012 levels and 19 mb below average. However, due to lower refinery throughputs compared to one year ago, forward cover increased y o y: crude stocks covered 26 days at end July, 1 day more than in July SEPTEMBER 2013

35 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT OECD STOCKS Refined product holdings built by 1.3 mb on the month, in line with seasonal trends but significantly less than the 4.0 mb five year average rise. Due to falling end user demand, product inventories now cover 37.7 days, 0.3 day above end June and comfortably within the seasonal range. Product builds were tempered by a 3.1 mb dip in motor gasoline holdings, stronger then the 0.4 mb average draw for the month, after transatlantic trade remained healthy, according to anecdotal reports. Despite this monthly draw, at end July gasoline inventories covered 43.8 days of forward demand, 1.5 days above the fiveyear average. Middle distillates inventories rose by a seasonal 4.9 mb, while in Germany consumers continued their summer refilling of heating oil residential tanks, lifting fill rates by two percentage points to 57% by early July. mb OECD Europe Crude Oil Stocks Jan Mar May Jul Sep Nov Jan Range Avg days OECD Europe Total Products Stocks Days of Forward Demand 35 Jan Mar May Jul Sep Nov Jan Range Avg Preliminary data from Euroilstock indicate that stocks dropped by a counter seasonal 14.4 mb in August with all oil categories except motor gasoline posting draws. Crude oil fell by 7.0 mb, far stronger than the 0.6 mb average draw for the month while refined products fell by a combined 7.4 mb, in sharp contrast to the five year average 10.7 mb build for August. Middle distillates holdings plummeted by 7.1 mb compared to the 9.1 mb five year average build. Meanwhile, stocks of fuel oil and other products slipped by 0.3 mb and 1.3 mb, respectively. Data pertaining to refined products held in independent storage in Northwest Europe suggest that stocks built during August with all product categories rising except naphtha. OECD Asia Oceania days OECD Asia Oceania Total Products Stocks Days of Forward Demand 17 Jan Mar May Jul Sep Nov Jan Range Avg mb/d Japan Weekly Crude Stocks Source: PAJ Jan Apr Jul Oct Range yr Average Commercial inventories in OECD Asia Oceania (excluding Israel) followed a similar pattern to Europe as their seasonal restocking began in July. Total oil stocks built by 5.0 mb, leaving the region at a slight 0.8 mb deficit to the five year average. A 6.9 mb build in refined products pushed total stocks upwards as middle distillates, residual fuel oil and other products rose by 5.4 mb, 1.3 mb and 0.3 mb, respectively, while motor gasoline retreated by 0.1 mb. Indeed, this underlying trend was evident across Japan and 12 SEPTEMBER

36 OECD STOCKS INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT South Korea where all product categories increased except motor gasoline. All told, regional refined products now cover 21.4 days of forward demand, 0.9 days above end June and comfortably inside the seasonal range. Meanwhile, crude oil slipped by an unseasonal 0.7 mb with the draw concentrated in Japan ( 3.1 mb). Despite a monthly rise in crude imports, it is likely that these were outpaced by a 280 kb/d surge in refinery runs. However, it is also probable that crude stocks were run down at the 140 kb/d Sakaide refinery ahead of its permanent early August closure. Preliminary weekly data from the Petroleum Association of Japan (PAJ) indicate that total oil inventories there inched up by 0.9 mb by end August. However, this obscured the fact that crude stocks drew steadily over the month so that by end month they were 9 mb lower compared with end June. If confirmed by final data this would be the steepest draw since monthly reporting began in As in July, it is likely that this draw can be partly explained by the shuttering of the Sakaide refinery as its final stocks were likely drawn. Despite this closure, Japanese refinery runs remain high, increasing by 140 kb/d m o m in August. The increased refinery activity translated into a seasonal 8.1 mb build in refined products. All categories rose bar other products ( 0.1 mb). Notable increases were posted for middle distillates (+6.4 mb) and residual fuel oil (+1.2 mb). Recent Developments in Singapore and China Stocks According to weekly data from International Enterprise, land based refined product inventories in Singapore increased by 6.1 mb in August, their largest monthly build in four years. A 2.8 mb hike in residual fuel oil stocks led the gains as demand for bunker fuels reportedly remained weak while arbitrage brought product into the region from the Atlantic Basin. By end month stocks remained 3.6 mb and 5.0 mb above the five year average and last year s level, respectively. After starting the month below the seasonal range, light distillates surged by 1.6 mb over the month to stand comfortably above average levels by month end as cargoes were drawn in from Taiwan, India and the UAE while Southeast Asian demand remained relatively weak. mb Singapore Weekly Total Product Stocks Source: International Enterprise 20 Jan Apr Jul Oct Range yr Average mb 15 China Monthly Oil Stock Change* Source: China Oil, Gas & Petrochemicals (5) (10) (15) Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Crude Gasoline Gasoil Kerosene *Since August 2010, COGP only reports percentage stock change Data from China Oil Gas and Petrochemicals (China OGP) point to an 11.0 mb decrease in Chinese industry inventories in July (data are reported in terms of percentage stock change). Crude oil inventories declined by 1.6 % (3.5 mb) after refinery throughputs outpaced record crude oil imports (5.97 mb/d) while crude production was hit by flooding at the Changqing field (see Supply). Stocks of refined products fell by a combined 7.5 mb as motor gasoline, diesel and kerosene holdings drew by an equivalent 4.7 mb, 2.4 mb and 0.5 mb, respectively SEPTEMBER 2013

37 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT OECD STOCKS Regional OECD End-of-Month Industry Stocks (in days of forward demand and million barrels of total oil) Days 1 Days Americas Jan Mar May Jul Sep Nov Jan Range Avg Days Europe Jan Mar May Jul Sep Nov Jan Range Avg Days Asia Oceania Jan Mar May Jul Sep Nov Jan Range Avg Days OECD Total Oil Jan Mar May Jul Sep Nov Jan Range Avg Million Barrels mb Americas 1,450 1,400 1,350 1,300 1,250 1,200 1,150 Jan Mar May Jul Sep Nov Jan Range Avg mb Europe 1,080 1, Jan Mar May Jul Sep Nov Jan Range Avg mb Asia Oceania Jan Mar May Jul Sep Nov Jan Range Avg mb OECD Total Oil 2,850 2,800 2,750 2,700 2,650 2,600 2,550 2,500 Jan Mar May Jul Sep Nov Jan Range Avg Days of forw ard demand are based on average demand over the next three months 12 SEPTEMBER

38 PRICES INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT PRICES Summary Oil futures escalated in tandem with rising geopolitical tensions over Syria s suspected use of chemical weapons on civilians at end August. Markets were further supported by the near total shut in of Libyan crude oil fields, terminals and refineries by striking industry workers, security guards and tribal militias. By 9 September crude oil prices reversed course after Russia s proposal for Syria to surrender its chemical weapons gained traction in western capitals, with Brent last trading at around $111.60/bbl and WTI at $107.50/bbl. Refiners looking for replacement barrels in the wake of supply shortfalls from Libya, the North Sea and Russia, among other countries, bid prompt prices to relatively lofty levels. The Brent M1 M2 futures contract widened to $1.65/bbl in early September compared with around $1.20/bbl in August and just $0.80/bbl in July. Spot product crack spreads posted diverging trends in August, with the US partially insulated from the recent surge in crude prices, which compressed crack spreads in Asia and Europe. Gasoline crack spreads fell in all major regions as summer peak demand ended, particularly in Asia and in the US. Freight rates for very large crude carriers (VLCCs) experienced another lacklustre month in August as ample tonnage weighed heavily on markets. Furthermore, vessel earnings fell into negative territory as bunker costs surged in line with soaring benchmark crude prices. $/bbl Crude Futures $/bbl Front Month Close Source: ICE, NYMEX 98 Aug 12 Nov 12 Feb 13 May 13 Aug 13 NYMEX WTI ICE Brent Source: ICE ICE Brent Forward Price Curve M Sep Jul Aug Sep 13 Market Overview Oil futures escalated in tandem with rising geopolitical tensions over Syria s suspected use of chemical weapons on civilians at end August. Markets were further supported by the near total shut in of Libyan crude oil production by striking industry workers, facility guards and warring militias. Brent futures peaked at a six month high of around $117/bbl on 28 August, while WTI rose just over $110.50/bbl the same day. Prices turned lower on 9 September after Russia s proposal for Syria to surrender its chemical weapons gained traction in western capitals, with Brent last trading at around $111.60/bbl, or down about $5/bbl from its August peak. WTI posted similar declines, and was last quoted at $107.50/bbl. A western military strike against Syria, if it were to occur, would have no direct impact on physical crude oil supplies but the threat of an action has sparked market fears that the conflict will spread in the region. While Syrian crude production has fallen to around 50 kb/d for some time, market attention is focussed on the potential for the Syrian conflict to spread to neighbouring producing countries, such as Iraq, or to disrupt oil flows to the Mediterranean via key transit country Turkey SEPTEMBER 2013

39 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT PRICES The conflict in Syria has already had a knock on effect in Iraq, where violence has escalated to the highest level in five years as sectarian fault lines deepen. Prime Minister Nuri al Maliki s government is largely viewed as aligned with President Assad s regime while Sunni opposition leaders in Iraq are widely assumed to sympathise with Syrian rebels. Echoing the fears of many, the outgoing UN envoy to Iraq told the Security Council that Syria s civil war has already spilled over into Iraq, saying that the battlefields are merging into one conflict, which could destabilize the broader Middle East. Iraqi insurgents have repeatedly attacked the northern Kirkuk Ceyhan pipeline, which runs to the Mediterranean port of Ceyhan, Turkey. This has caused exports from Northern Iraq to fall to five year lows of under 200 kb/d in July and August, compared with previous levels of close to 400 kb/d. $/bbl Source: NYMEX NYMEX WTI Forward Price Curve M Sep Jul Aug Jun 13 US$/bbl NYMEX WTI vs S&P 500 Index Source: NYMEX Jan 12 May 12 Sep 12 Jan 13 May 13 Sep 13 NYMEX WTI S&P 500 (RHS) Markets were also on edge at the end of August after a failed attack on a container ship in the Suez Canal, a key transit corridor for crude oil and products between the Mediterranean and the Red Sea. The ongoing political and civil unrest in Egypt has rattled markets but there have been no direct threats to the Suez Canal or SUMED pipeline oil flows, which carry a combined 3.9 mb/d of crude and products. The Egyptian army said it will guarantee the safety of the canal and pipeline. While the focus of the mainstream news has been on Syria, actual, severe disruptions have curtailed Libyan supplies. Libya s production hit a post war low of 150 kb/d in early September compared with 550 kb/d on average in August and 1 mb/d in July amid crippling labour disputes, civil unrest and political turmoil. The government has set up a crisis committee tasked with negotiating a settlement among the various striking workers and tribal militias in a bid to get the oil sector functioning again but to date there has been little progress (see OPEC Supply, Libyan Oil Supplies Cascade Lower ). $/bbl Crude Futures Front Month Spreads Source: ICE, NYMEX -0.5 Contango -1.0 Aug 12 Nov 12 Feb 13 May 13 Aug 13 WTI M1-M2 Brent M1-M2 $/bbl Crude Futures Forward Spreads Backwardation Source: ICE, NYMEX -4 Aug 12 Nov 12 Feb 13 May 13 Aug 13 WTI M1-M12 Brent M1-M12 Despite supply disruptions and heightened tensions in the Middle East and North Africa, from a supply perspective oil markets nonetheless still appear adequately supplied. Saudi Arabia ramped up production to a 32 year high of mb/d in August. Despite a m o m decline of 510 kb/d in non OPEC supply in August, 3Q13 non OPEC supply is expected to be up by 1.65 mb/d y o y. OECD stocks are currently above 12 SEPTEMBER

40 PRICES INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT year ago levels and refinery activity is trending lower due to seasonal maintenance, tempering refiner demand for crude. After hitting a seasonal peak in July, global refinery crude demand is set to fall sharply through October with the onset of scheduled maintenance. The supply outages and the threat Western strikes on Syria propelled prompt prices higher. The Brent M1 M2 futures contract widened to $1.65/bbl in early September compared with around $1.20/bbl in August, $0.80/bbl in July and just $0.25/bbl in June. Signalling market expectations of looser markets further out, the Brent M1 M12 also widened further in early September, to near $11/bbl compared with $7.55/bbl in August and $6.15/bbl in July. As expected, the loss of Libya s light, low sulphur crude has also had a significant impact on spot prices for competing grades. Prompt Month Oil Futures Prices (monthly and weekly averages, $/bbl) Jun Jul Aug Aug-Jul % Week Commencing: Avg Chg Chg 12 Aug 19 Aug 26 Aug 02 Sep 09 Sep** NYMEX Light Sw eet Crude Oil RBOB No.2 Heating Oil No.2 Heating Oil ($/mmbtu) Henry Hub Natural Gas ($/mmbtu) ICE Brent Gasoil Prompt Month Differentials NYMEX WTI - ICE Brent NYMEX No.2 Heating Oil - WTI NYMEX RBOB - WTI NYMEX Crack (RBOB) NYMEX No.2 - Natural Gas ($/mmbtu) ICE Gasoil - ICE Brent Source: ICE, NYM EX **Includes prices through 10 September Futures Markets ICE Brent hedge funds posted record net long positions between 30 July and 3 September as prices surged to 117/bbl in intra day trade, in line with rising tensions surrounding Syria. By contrast, NYMEX WTI money managers net long positions were down 13% on the month as the Cushing benchmark traded in a narrower range, albeit showing some signals of strength in early September. '000 Net positions in ICE Brent Futures $/bbl contracts 500 Source: ICE Jul 06 Aug 20 Aug 03 Sep Producers Swap Dealers Money Managers Others Reportable Non-Reportable ICE Brent '000 Net positions in WTI Futures contracts Jul 06 Aug Producers Money Managers Non-Reportable Source: CFTC, NYMEX $/bbl Aug 03 Sep Swap Dealers Others WTI - Mth1 On the products side, New York hedge funds cautiously reduced their long exposures in RBOB gasoline while they increased Heating Oil by 17%, as prices steadily inched up during the month. Money managers SEPTEMBER 2013

41 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT PRICES on the other side of the Atlantic similarly increased their net long position as ICE Gasoil grew stronger throughout August, posting a 36% growth month on month. ('000 contracts) WTI - Brent Open Interest -200 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Mth 1-5 Mth 6-12 Mth 13+ NYMEX WTI vs ICE Brent (mln) Futures trade volumes 20 Source: CME, ICE Jan 09 Oct 09 Jul 10 Apr 11 Jan 12 Oct 12 Jul 13 ICE Brent CME WTI In terms of open interest both contracts were up significantly on a y o y basis, 21% for WTI and 31% for Brent. On a monthly basis they were both relatively stable, Brent inching down just under 1% and WTI growing less than 3%. NYMEX WTI still outnumbers ICE Brent in terms of outstanding contracts, although the difference is mostly due to the medium and far part of the forward curve, especially for contracts expiring in more than a year. As ICE Brent volumes were substantially unchanged and NYMEX WTI dropped 16.5% m o m, the North Sea benchmark was the most traded during August, although the US contract still prevails in the global picture (i.e., when accounting London traded WTI). On a year on year basis, both contracts grew within single digits, 8.4% for ICE Brent and 9.9% for NYMEX WTI. Positions on Light Sweet Crude Oil (WTI) Futures Thousand Contracts Net from Prev. 03 September 2013 Long Short Net Long/Short Week Net Vs Last Month Producers' Positions Long Swap Dealers' Positions Short Money Managers' Positions Long Others' Positions Long Non-Reportable Positions Long Open Interest Source: CFTC 03 September 2013 Long Short Net Long/Short Net from Prev. Week Net Vs Last Month Producers' Positions Short Swap Dealers' Positions Long Money Managers' Positions Long Others' Positions Short Non-Reportable Positions Long Open Interest Source: ICE Positions on ICE Brent Crude Futures Thousand Contracts 12 SEPTEMBER

42 PRICES INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT Financial Regulation The US Commodity Futures Trading Commission (CFTC) began registering swap execution facilities (SEFs) under the Dodd Frank reform on 1 August. The CFTC also issued a final rule setting capital requirements for systemically important derivatives clearing organizations (SIDCOs) on 12 August. The rule increases financial requirements for SIDCOs, in addition to granting special enforcement authority to the CFTC. The Basel Committee of regulators published on 2 September the final rules for initial margin requirements, requiring financial entities to post an initial margin for their swaps trades when those are not centrally cleared through a clearing house. Such margins are aimed at providing a safety net if no clearing house is involved and will be posted in addition to the variation margin that provides for daily fluctuations of the contract value. The new rules will be phased in over four years starting in Foreign exchange swaps and forwards will be exempt from initial margin requirements. Meanwhile, on 3 September the European Securities and Markets Authority (ESMA) published its advice to the European Commission on recognising the equivalent of the regulatory regimes of Australia, Hong Kong, Japan, Singapore, Switzerland and the US. Ruling areas covered involve over the counter (OTC) derivatives clearing, clearing houses and trade repositories. More advice on other areas not yet covered is expected by 1 October. Central counterparties (CCPs) from non EU member countries will have to apply by 15 September for ESMA recognition. Spot Crude Oil Prices Spot crude oil markets were supported by geopolitical woes in the MENA region and supply disruptions in Libya, Iraq, the North Sea and China. Dubai posted the strongest gains, up by around $3.60/bbl to around $107.05/bbl in August. Demand for medium to heavy sour grades also strengthened relative to crudes linked to pricier North Sea Brent. The absence of Libyan crude from the market and planned North Sea field maintenance work lent considerable support to Brent, up by $3.40/bbl on the month, to $111.30/bbl. US WTI posted a smaller $1.85/bbl increase, $106.55/bbl, despite a sharp draw down in US crude inventories and continued high throughput rates in August. $/bbl Benchmark Crude Prices Aug 12 Nov 12 Feb 13 May 13 Aug 13 WTI Cushing N. Sea Dated Dubai $/bbl Crude Prices Prompt Month Differentials Copyright 2013 Argus Media Ltd Copyright 2013 Argus Media Ltd -1.0 Aug 12 Nov 12 Feb 13 May 13 Aug 13 North Sea M1 - M2 Dubai M1 - M2 The steady erosion in Libyan supplies over the month and uncertainty surrounding Iraq s September export program, among other supply disruptions, saw prices surge for prompt barrels and differentials strengthen for alternative grades in August. Prompt prices for Brent and Dubai crudes rose a further $0.50/bbl in early September on top of already robust increases in August. The Brent M1 M2 futures contract widened to $1.65/bbl in early September compared with around $1.10/bbl in August, $0.70/bbl in July and just $0.25/bbl in June. The Dubai M1 M2 also widened further in early September, to near $1.60/bbl compared with around $1.05/bbl in August and $0.55/bbl in July SEPTEMBER 2013

43 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT PRICES $/bbl WTI vs North Sea Dated Copyright 2013 Argus Media Ltd Aug 12 Nov 12 Feb 13 May 13 Aug 13 $/bbl Middle Eastern Crude Prices vs. North Sea Dated Copyright 2013 Argus Media Ltd Aug 12 Nov 12 Feb 13 May 13 Aug 13 Oman-North Sea Dubai-North Sea The Brent premium over other benchmark grades WTI and Dubai widened again due to the relative strength for competing crudes with Libyan crudes in European markets. The Brent WTI price spread averaged $7/bbl in early September compared to $4.80/bbl in August, $3.21/bbl in July. Dubai s discount to Brent increased to around $5.50/bbl in early September compared with around $4.30/bbl in August, $4.45/bbl in July and $2.65/bbl in June. As expected, the loss of Libya s light, low sulphur crude has had a significant impact on competing grades. In Europe, the premium for replacement barrels of Libyan and Iraqi grades rose steadily over the month, with Azeri Light fetching top prices (see OPEC Supply, Libyan Oil Supplies Cascade Lower ). By mid August and early September, prices for some grades were deemed too expensive. Under the weight of eroding margins, some European refiners cutback planned runs. $/bbl Urals Differentials to North Sea Dated Copyright 2013 Argus Media Ltd Aug 12 Nov 12 Feb 13 May 13 Aug 13 Urals (NWE) Urals (Med) $/bbl Copyright 2013 Argus Media Ltd ESPO differentials 0 Aug 11 Feb 12 Aug 12 Feb 13 Aug 13 ESPO vs Dubai After trading at a premium to Brent in recent months on lower Russian export volumes and reduced Iraqi Kirkuk and Libyan supplies to Europe, the differential for Urals in the Mediterranean turned negative briefly in early September. By contrast, the Brent Urals price differential in Northwest Europe consolidated its downward trend in early September at $1/bbl compared with a premium of +$0.05/bbl on average in July and +$0.55/bbl in July. Russian exports are forecast to rebound sharply in September. In August however, Urals crude traded at a premium of around $0.55/bbl compared to about $0.85/bbl in July and a more typical discount against Dated Brent of $0.20/bbl in June. Meanwhile, Saudi Arabia raised official selling prices (OSPs) of its Arab Light grades and Arab Medium to Asia for October after supply disruptions elevated premiums for most Middle Eastern crudes ahead of peak winter demand. The relative strength of Brent against Dubai also supported Middle East and Russian crudes linked to cheaper Dubai. Asian buyers stepped up purchases of sour Russian ESPO crudes, despite the $6/barrel premium over Dubai in early September. Asia saw significant increases in Iraqi Basrah Light crude imports in August at a steep 1.59 mb/d compared with 1.29 mb/d in July but volumes are expected to ease in the next several months on maintenance work at Iraq s southern terminals. 12 SEPTEMBER

44 PRICES INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT Spot Crude Oil Prices and Differentials Table Unavailable Available in the subscription version. To subscribe, visit: Spot Product Prices Spot product crack spreads posted diverging trends in August, with the US partially insulated from the recent surge in crude prices, which pressured crack spreads in Asia and Europe. Gasoline crack spreads fell across the board, suffering from both strong crude prices and lower US and Singapore spot prices as the driving season came to a close. Gasoline crack spreads fell in all major regions as summer peak demand ended, particularly in Asia and in the US. Notably, Singapore crack spreads fell by about $8.25/bbl to around $10/bbl due to the combined effect of stronger crude and lower gasoline prices. Lower Indonesian gasoline imports pressured prices as the country is suffering currency weakness (See Demand, Emerging Market Currency Depreciation Set to Impact Demand ). US crack spreads fell more than $4.65/bbl in August but still averaged a healthy $22.70/bbl. Gasoline crack spreads in Northwest Europe were down just over $1/bbl, to $10.50/bbl as rising crude prices outpaced increased gasoline prices. $/bbl Gasoline Cracks to Benchmark Crudes Copyright 2013 Argus Media Ltd -10 Aug 12 Nov 12 Feb 13 May 13 Aug 13 NWE Prem Unl USGC 93 Conv Med Prem Unl SP Prem Unl $/bbl Naphtha Cracks to Benchmark Crudes Copyright 2013 Argus Media Ltd -18 Aug 12 Nov 12 Feb 13 May 13 Aug 13 NWE SP Med ME Gulf Naphtha crack spreads were relatively stable month on month in both Europe and Asia. However, in the Mediterranean crack spreads posted wide price swings throughout August, climbing by more than $5/bbl during the month on the back of stronger naphtha demand. Singapore naphtha crack spreads moved further into negative territory, down $0.15/bbl to $5.70/bbl SEPTEMBER 2013

45 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT PRICES $/bbl 25 Gasoil/Heating Oil Cracks to Benchmark Crudes $/bbl 26 Jet/Kerosene Cracks to Benchmark Crudes Copyright 2013 Argus Media Ltd 0 Aug 12 Nov 12 Feb 13 May 13 Aug 13 NWE Gasoil 0.1% USGC Heating Oil Med Gasoil 0.1% SP Gasoil 0.05% 10 Copyright 2013 Argus Media Ltd 6 Aug 12 Nov 12 Feb 13 May 13 Aug 13 NWE Jet/kero USGC Jet/kero Med Jet Fuel SP Jet/kero Gasoil crack spreads showed diverging trends among the regions. Asian crack spreads monthly average fell by $2.51/bbl to $17.10/bbl as stronger crude prices eclipsed spot gasoil gains. Lower than expected Indian diesel consumption also pressured cracks as end user prices continued to rise and general economic malaise subdued demand. European crack spreads inched down $0.50 $0.70/bbl, to $13.85/bbl in Northwest Europe and $13.15/bbl in the Mediterranean. Weighing on prices, heavy monsoon rains in India subdued domestic demand and pushed additional exports to Asia and Europe. However, US cracks on both gasoil and ultra low sulphur Diesel bucked the trend, going up around $2 3/bbl on a monthly basis to $11.55/bbl and $16.90/bbl respectively. Jet/Kerosene crack spreads were relatively stable in all NWE ULSD USGC ULSD regions bar the US, where the crack spreads touched Med ULSD SP Gasoil 0.05% $20/bbl in mid August and finally settled at $15/bbl in early September. US Gulf crack spreads drew support from a series of unplanned shut downs, including Motiva s Port Arthur refinery in Texas and the Convent refinery in Louisiana. In contrast to the US, European and Asian crack spreads were largely unchanged on a monthly average basis though trended lower by the end of August as summer travel season faded out. $/bbl Diesel Fuel Cracks to Benchmark Crudes Copyright 2013 Argus Media Ltd 8 Aug 12 Nov 12 Feb 13 May 13 Aug 13 High-Sulphur Fuel Oil $/bbl Cracks to Benchmark Crudes Copyright 2013 Argus Media Ltd -30 Aug 12 Nov 12 Feb 13 May 13 Aug 13 NWE HSFO 3.5% Med HSFO 3.5% SP HSFO 380 4% $/bbl Low-Sulphur Fuel Oil (1%) Cracks to Benchmark Crudes Copyright 2013 Argus Media Ltd -20 Aug 12 Nov 12 Feb 13 May 13 Aug 13 NWE LSFO 1% Med LSFO 1% Indonesia LSWR Fuel oil crack spreads fell steadily throughout August in Europe and Asia but inched higher in the US Gulf ahead of the winter season. Asian cracks consolidated their negative trend, further dipping to levels unseen in more than two years, on the back of lower bunker consumption, below average Japanese power sector demand and Chinese imports at a year to date low. 12 SEPTEMBER

46 PRICES INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT Spot Product Prices Table Unavailable Available in the subscription version. To subscribe, visit: Freight Rates for very large crude carriers (VLCCs) experienced another lacklustre month in August as ample tonnage weighed heavily on markets. Furthermore, vessel earnings fell into negative territory as bunker costs surged to over $600/t and $660/t for HFO and LSFO, respectively, in line with soaring benchmark crude prices. Despite healthy demand for Middle Eastern crudes, rates on the benchmark VLCC Middle East Gulf Asia trade languished at below $10/mt throughout August and early September. US$/mt Daily Crude Tanker Rates Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul Kt WAF - USGC VLCC MEG-Asia 80Kt UK - UK cont 100Kt Baltic - UK US$/mt Daily Product Tanker Rates Copyright 2013 Argus Media Ltd 5 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 38Kt Carib - USAC 37Kt UKC - USAC 75Kt MEG - Jap 30Kt SP - Jap A similar picture was evident in Atlantic Basin Suezmax markets where, despite disruption in Libya and reports of extra light, sweet crude leaving West Africa bound for Europe, rates weakened month on SEPTEMBER 2013

47 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT PRICES month. Indeed, despite, some early August strengthening to over $16.50/mt, rates on the benchmark West Africa US Gulf Coast route retreated sharply so that by early September they sat below $13/mt as supply heavily outweighed demand. The only bright spot in crude tanker markets was Northwest Europe where rates uncharacteristically firmed during a period where they historically tend to trend sideways. Following a raft of cargos coming out of the Baltic terminals of Ust Luga and Primorsk, reportedly bound for long haul transatlantic destinations, regional Aframax tonnage tightened considerably. This pushed rates for the Baltic UK trades to over $9/mt in mid August. However, as extra vessels entered the market in early September, rates slipped back to their normal levels of approximately $6/mt. Product tanker markets experienced a mixed month, generally weakening over the first half of August before rebounding from late month onwards after demand picked up. In the East, after languishing at year lows of $20/mt in early August, the benchmark Middle East Gulf Japan trade surged to a year high of close to $32/mt by early September spurred on by tight fundamentals. However, these levels are unlikely to be sustained for long with current reports of vessels ballasting towards the Middle East Gulf from elsewhere. In the Atlantic basin, rates weakened over the first half of August to stand at year to date lows as transatlantic trade remained below par. However, after multiple gasoline cargoes entered the market in mid month, rates began to firm so that by early September rates on the benchmark UK US Atlantic coast trade once again exceeded $17/mt. 12 SEPTEMBER

48 REFINING INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT REFINING Summary Global refinery crude throughputs reached a seasonal peak in July, at an estimated 78.2 mb/d, up 1 mb/d from June and 1.8 mb/d above a year earlier. Monthly gains spanned all regions, bar China. Global throughputs are expected to fall steeply from August onwards, due to weaker refinery margins and the onset of seasonal maintenance. Scheduled turnarounds are especially heavy in Europe and the FSU, mitigating the effect of current feedstock supply disruptions. The estimate of global throughputs for 3Q13 has been revised downwards by 180 kb/d since last month s Report, largely on lower expectations of European refinery runs. Weak margins have revived talk of economic run cuts, on top of heavy planned maintenance. Global crude runs are forecast to reach 77.2 mb/d in 3Q13, up 1.1 mb/d above year earlier levels, before declining to 76.8 mb/d in 4Q13. OECD crude runs rose another 450 kb/d in July, to average 38 mb/d. While all OECD regions moved higher, Japan, the US and Italy accounted for the bulk of the increase. Annual gains were reported only for the US and Japan. After a temporary respite in June, European crude intake resumed its structural decline, sliding by some 510 kb/d y o y. Margins generally deteriorated in August, prompting talk of further run cuts in both Europe and Asia. Refinery margins fell in all regions surveyed bar the US Gulf Coast in August, as crude prices rose faster than product prices. European margins fell by nearly $1/bbl on average. Simple refiners were particularly hard hit and are now firmly in the red. Even steeper falls came in the US Midcontinent, as crude stock draws at Cushing supported WTI prices, and in Singapore, where only Dubai hydrocracking margins remained positive. US Gulf Coast margins rose on average in August, propped up by refinery problems in the second half of the month. mb/d Global Refining Crude Throughput Jan Mar May Range Jul Sep Nov Jan Average est mb/d Global Throughputs vs. Demand Annual growth Q09 1Q10 4Q10 4Q11 4Q12 4Q13 Crude Runs Oil Product Demand Global Refinery Overview Global refinery crude throughputs reached a seasonal peak in July, at an estimated 78.2 mb/d, and a sharp 1.8 mb/d above year earlier levels. Runs are set to fall from August onwards, as refiners scale back throughputs due both to planned maintenance and a weakening margin environment. Recent crude price increases have largely outpaced gains in refined product prices, curbing refinery margins and spurring talk of economic run cuts in Europe and Asia. At the same time, refinery maintenance in Europe and Russia is expected to slash crude demand in those regions by a combined 2 mb/d in both September and October. The scheduled shutdowns, at a time when regional crude supply faces shortfalls from Libya, Iraq and the North Sea, eases somewhat the strain of sourcing alternative feedstocks SEPTEMBER 2013

49 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT REFINING As a result of slightly weaker reported OECD and Chinese refinery runs for July, and a somewhat more pessimistic outlook for runs in September, 3Q13 global crude run estimates have been trimmed by 180 kb/d since last month s report. At 77.2 mb/d, global runs are still assessed an impressive 1.1 mb/d above the same quarter last year, with gains almost entirely accounted for by non OECD countries. The largest contributors to growth remain China (+400 kb/d), Russia (+155 kb/d), Algeria (180 kb/d), India (+145 kb/d), Venezuela (+125 kb/d), Saudi Arabia (+85 kb/d) and Brazil (+80 kb/d). In the OECD, only US refiners continue to surge ahead on the back of advantaged regional crude supplies, comparatively low energy costs (cheap natural gas) and robust export demand for refined products. Preliminary weekly data show US crude intake running 390 kb/d and 535 kb/d above year earlier levels in July and August, respectively. Global Refinery Crude Throughput 1 2 (million barrels per day) May 13 Jun 13 2Q2013 Jul 13 Aug 13 Sep 13 3Q2013 Oct 13 Nov 13 Dec 13 4Q2013 Americas Europe Asia Oceania Total OECD FSU Non-OECD Europe China Other Asia Latin America Middle East Africa Total Non-OECD Total Preliminary and estimated runs based on capacity, know n outages, economic run cuts and global demand forecast 2 From the report dated 10 August, 2012 OECD Americas include Chile and OECD Asia Oceania includes Israel. Annual growth is expected to slow somewhat in 4Q13, to around 540 kb/d globally. OECD runs are set to continue to contract structurally, on lower end user demand and reduced capacity compared with a year earlier. In the Pacific and Europe refinery consolidation continues, with plants shutting permanently in both regions during the summer (Cosmo s 140 kb/d Sakaide refinery shut in early August and ENI s 80 kb/d Venice refinery halted operations in July before being converted into a bio refinery). In the non OECD region, runs continue to be supported by more robust demand growth than in the OECD, as well as by new refining capacity. In Saudi Arabia, the 400 kb/d Satorp plant in Jubail is ramping up runs as new units are commissioned. The plant is expected to reach full rates in early While some uncertainty surrounds the start up of PetroChina s 200 kb/d grassroot Pengzhou refinery in Sichuan province (due to potential flood damage to pipelines feeding the refinery), company officials announced on 5 September, that after several delays, the plant will start up in late October. By end year, Sinochem s new 240 kb/d Quanzhou refinery is also set to start trial runs. In all, 4Q13 global crude runs are estimated to average 76.8 mb/d. Refining Margins Refining margins fell in all regions bar the US Gulf Coast in August, as increases in product prices generally failed to keep up with gains recorded for feedstock prices. Crude oil grades, in particular North Sea and Middle Eastern grades, were supported by severe supply disruptions while product price increases were capped by the end of the summer driving season and high gasoline inventories on both sides of the Atlantic. Simple refinery margins moved more firmly into the red in both Northwest Europe 12 SEPTEMBER

50 REFINING INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT and the Mediterranean, sinking to their lowest levels since January. Whereas Northwest European margins will likely be supported by heavy maintenance scheduled for September and October, on the Mediterranean economic run cuts are starting to look inevitable. CEPSA reportedly decided to start maintenance work at its Tenerife refinery early due to poor economics and will keep the refinery shut for longer than initially planned. Several other refineries scheduled to shut for maintenance may delay their restart until margins improve. $/bbl Mediterranean Refining Margins Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Es Sider Cracking Es Sider HS Urals Cracking Urals HS NW Europe IEA/KBC Global Indicator Refining Margins 1 ($/bbl) Monthly Average Change Average for w eek ending: May 13 Jun 13 Jul 13 Aug 13 Aug 13-Jul Aug 09 Aug 16 Aug 23 Aug 30 Aug Brent (Cracking) Urals (Cracking) Brent (Hydroskimming) Urals (Hydroskimming) Mediterranean Es Sider (Cracking) Urals (Cracking) Es Sider (Hydroskimming) Urals (Hydroskimming) US Gulf Coast 50/50 HLS/LLS (Cracking) Mars (Cracking) ASCI (Cracking) /50 HLS/LLS (Coking) /50 Maya/Mars (Coking) ASCI (Coking) US Midcon WTI (Cracking) /70 WCS/Bakken (Cracking) Bakken (Cracking) WTI (Coking) /70 WCS/Bakken (Coking) Bakken (Coking) Singapore Dubai (Hydroskimming) Tapis (Hydroskimming) Dubai (Hydrocracking) Tapis (Hydrocracking) Global Indicator Refining Margins are calculated for various complexity configurations, each optimised for processing the specific crude(s) in a specific refining centre. Margins include energy cost, but exclude other variable costs, depreciation and amortisation. Consequently, reported margins should be taken as an indication, or proxy, of changes in profitability for a given refining centre. No attempt is made to model or otherwise comment upon the relative economics of specific refineries running individual crude slates and producing custom product sales, nor are these calculations intended to infer the marginal values of crude for pricing purposes. Source: IEA, KBC Advanced Technologies (KBC) US refinery margins diverged in August. Those on the Gulf Coast improved by just over $1.00/bbl on average. LLS and HLS crudes saw their discount to Brent widen in August, as the threat of military action in Syria and supply outages in the North Sea, Iraq and Libya supported Brent. Gulf Coast margins also SEPTEMBER 2013

51 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT REFINING benefited from renewed problems at Motiva s 600 kb/d Port Arthur refinery. Gasoline cracks plummeted in early September, however, as the Labour Day weekend marked the end of the driving season amid ample gasoline inventories. In contrast, refining margins in the US Midcontinent fell by $ /bbl on average. Continued US crude stock draws, particularly at Cushing, where inventories hit their lowest level since March 2011, propped up WTI linked grades, cutting into profits. $/bbl US Gulf Coast Refining Margins Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Mars Cracking HLS/LLS Cra. ASCI Coking Maya/Mars Cok. $/bbl Singapore Refining Margins Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dubai Cracking Dubai HS Tapis Cracking Tapis HS In Singapore, margins continued their steep declines in August, and only Dubai cracking margins remained positive. On average, regional margins fell by $ /bbl, with the heaviest losses seen for simple plants. High inflows of residual fuel oil from Europe and the FSU, subdued regional demand and reduced buying from Chinese teapot refiners have taken the Singapore fuel oil crack to a five year low of $11.42/bbl on average in August. Gasoline cracks to Dubai fell by a hefty $8.23/bbl in the month, to average $10.01/bbl. OECD Refinery Throughput OECD refinery crude runs rose 450 kb/d in July, to a seasonal high of 38 mb/d. Throughputs rose in all regions, though the largest increases were accounted for by the US, Japan and Italy. After briefly surging ahead of year earlier levels in June, total OECD refinery runs, led by Europe, resumed their structural decline in July. In all, OECD crude throughputs stood some 290 kb/d below 2012 levels, with European throughput declines in excess of 500 kb/d year on year. mb/d OECD Total Crude Throughput 35 Jan Mar May Jul Sep Nov Jan Range Average est mb/d OECD Crude Throughputs Annual Change Q11 3Q11 1Q12 3Q12 1Q13 3Q13 Americas Europe Asia Oceania OECD Monthly June data for a number of OECD countries were weaker than expected, leading to a 165 kb/d downward revision overall. Final data showed Japanese crude intake 165 kb/d lower than preliminary data had suggested. Smaller downward revisions also came for a number of European countries, taking the regional total down 110 kb/d from last month s Report. Providing a partial offset, US refinery crude intake was revised upwards by 130 kb/d. 12 SEPTEMBER

52 REFINING INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT North American refinery crude intake rose by 130 kb/d in July, to 19.1 mb/d, or 320 kb/d above the previous year. US crude runs continue to trend well above year earlier levels, thanks in part to new or restarted capacity. Annual gains of 390 kb/d and 535 kb/d for July and August, respectively, came mostly from the US Gulf Coast, but also from the East Coast where the Trainer refinery now owned by a Delta Air Lines subsidiary was shut last year due to poor returns. Delta has said it lost $22 million in 1Q13 and $51 million in 2Q13 on the refinery, but that the plant had nevertheless helped lower fuel costs and turn a record setting profit for the airline. OECD Americas mb/d Crude Throughput Jan Mar May Jul Sep Nov Jan Range Average est mb/d Jan US Weekly Refinery Throughputs Source: EIA Jul 5-yr Average Despite relatively poor margins, US Gulf Coast refiners processed an average 450 kb/d more crude in July and August than in the same period in Towards the end of August, and for the month as a whole, refinery margins for US crudes improved, however. Renewed problems at Motiva s Port Arthur likely helped lift margins in the second half of August. A fire at the plant on 17 August knocked out more than half the 600 kb/d plant s output for at least two weeks. The fire, the second in a week, broke out in a hydrocracking unit located next to the largest of the refinery s three crude distillation units, forcing a shutdown of that 325 kb/d unit. It has been reported that the refinery could be forced to shut the CDU for up to three months in 2014 to complete repairs on a pipe that feeds it. US refinery maintenance is expected to be less heavy this year compared to last year. mb/d US Gulf Coast Refinery Throughputs Source: EIA 6.0 Jan Jul 5-yr Average US Midcon Refinery Throughputs mb/d Jan Source: EIA Jul 5-yr Average After a temporary respite in June, European refining activity resumed its steep structural contraction in July. Downward revisions to June European refinery runs, totalling some 110 kb/d since last month s Report, took regional runs just below year earlier levels, as opposed to the annual gains showed last month. Preliminary data for July were also slightly weaker than expected (135 kb/d below forecast), taking regional runs up 180 kb/d from June, to 12.2 mb/d. Compared with the relatively elevated runs recorded in July last year, regional throughputs resumed annual declines of more than 500 kb/d. Year todate (through July), European runs have contracted by an average 300 kb/d, with particularly steep contractions in Italy and the United Kingdom. French and German refiners have held up surprisingly well compared to year earlier levels while Spanish refinery runs have increased due to expanded capacity SEPTEMBER 2013

53 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT REFINING European refinery runs were likely weak in August and will remain so through October. Preliminary data from Euroilstocks released on 10 September show European runs falling 125 kb/d in August, when refinery margins in both Northwest Europe and the Mediterranean continued to slide and in the case of simple plants remained firmly negative. From September onwards, refiners both in the North and on the Mediterranean embark on a heavy turnarounds schedule, taking just over 1 mb/d capacity offline in September and 1.2 mb/d in October. Key plants undergoing maintenance include Shell s Pernis refinery which started work on 2 September, BP s Rotterdam refinery, Exxon s Antwerp plant, Preem s Gothenborg and Lysekil refineries in Sweden, Cepsa s Tenerife refinery and the Stanlow and Lindsey refineries in the UK. Most of these shutdowns are expected to extend into October. mb/d OECD Europe 14.0 Crude Throughput Jan Mar May Jul Sep Nov Jan Range Average est mb/d OECD Europe Refinery Shutdowns 0.0 Jan Mar May Jul Sep Nov Jan Range Average Forecast Refinery crude throughputs in OECD Asia Oceania rose by 140 kb/d in July, to 6.65 mb/d, as sharply higher Japanese crude runs were partly offset by slightly lower South Korean rates. Both June and July preliminary estimates for the region were revised lower since last month s Report. Final monthly data for Japan for June were 170 kb/d lower than preliminary data had suggested, while South Korean throughputs in July were 170 kb/d less than our previous estimate. South Korea's SK Energy started work on expanding a 74 kb/d RFCC unit at its massive 1.1 mb/d Ulsan refinery in July, resulting in lower throughputs. The work, which will raise capacity of the RFCC by 10 20%, is expected to be completed in mid September. The company is also conducting maintenance at a 240 kb/d CDU from 25 August to 18 September, according to news reports. mb/d OECD Asia Oceania Crude Throughput 6.0 Jan Mar May Jul Sep Nov Jan Range Average est mb/d Japan Weekly Refinery Throughput Source: PAJ, IEA estimates 2.5 Jan Apr Jul Oct Range yr Average Preliminary weekly data from the Petroleum Association of Japan (PAJ) show that Japanese refiners increased runs in August, to 3.58 mb/d (including NGLs processed, normally averaging 180 kb/d). The increase came despite the permanent closure of Cosmo Oil s 140 kb/d Sakaide refinery in early August. The shutdown had been announced last year, and is part of the government s measures to restructure the country s ailing refinery industry amid falling domestic demand. The Ministry of Economy, Trade and Industry set rules in 2010 requiring refiners to increase their residual cracking ratio by March 2014, in essence forcing refiners to upgrade plants or reduce crude distillation capacity. 12 SEPTEMBER

54 REFINING INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT Japan has already reduced crude distillation capacity by 420 kb/d since 2009, through the shutdown of Showa Shell s 120 kb/d Ogimachi refinery in 2011 and several smaller capacity reductions over 2009 and Idemitsu Kosan plans to permantly shut a 120 kb/d CDU at its Tokuyama refinery in March 2014, while JX Nippon Oil & Energy Corp, Japan s largest refiner, has announced it will permanently shut 200 kb/d of CDU capacity by the March 2014 deadline. It is still not clear which facility JX will shut. Tonen General is also expected to reduce capacity by around 100 kb/d next year, taking total Japanese capacity reductions to almost 1 mb/d over the period. Refinery Crude Throughput and Utilisation in OECD Countries (million barrels per day) Change from Utilisation rate 1 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Jun 13 Jul 12 Jul 13 Jul 12 US % 88.5% Canada % 94.9% Chile % 70.8% Mexico % 74.3% OECD Americas % 87.8% France % 88.2% Germany % 91.7% Italy % 73.4% Netherlands % 80.9% Spain % 87.2% United Kingdom % 79.5% Other OECD Europe % 80.0% OECD Europe % 82.2% Japan % 68.8% South Korea % 96.2% Other Asia Oceania % 79.2% OECD Asia Oceania % 79.1% OECD Total % 84.3% 1 Expressed as a percentage, based on crude throughput and current operable refining capacity 2 US50 3 OECD Americas includes Chile and OECD Asia Oceania includes Israel. OECD Europe includes Slovenia and Estonia, though neither country has a refinery Non-OECD Refinery Throughput Non OECD refinery crude runs rose sharply over June and July after maintenance was completed in the Middle East and ahead of peak summer demand. Chinese crude intake surged 440 kb/d in June, before falling back slightly in July and August. Russian refiners processed record levels in July and sustained high runs through August ahead of heavy scheduled maintenance. Brazilian refiners also touched record highs in July. Towards year end, the commissioning of new capacity in China and the ramp up of Satorp s 400 kb/d Jubail refinery will underpin growth. A rebound is also expected in Venezuela and Algeria, both of which had significant capacity offline in mb/d Non-OECD Total Crude Throughput Jan Mar May Jul Sep Nov Jan Range Average est SEPTEMBER 2013

55 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT REFINING Chinese refinery runs fell by 150 kb/d in July compared with June, to 9.5 mb/d, but were some 600 kb/d above year earlier levels. Throughputs declined another 155 kb/d in August as major refineries scaled back runs due to refinery maintenance. Around 0.8 mb/d of capacity is assessed as being offline in August, compared with less than 0.4 mb/d in July. The latest official customs data also shows Chinese crude purchases fell to a six month low in August, though remained 16.5% above year earlier levels. Chinese throughputs are expected to rebound from September onwards as work is completed and new capacity is commissioned. mb/d China Crude Throughput Jan Mar May Jul Sep Nov Jan mb/d China Oil Demand vs. Crude Runs Annual Change Q09 1Q10 1Q11 4Q11 4Q12 4Q13 Crude Runs Oil Product Demand Chinese crude runs continue to track domestic demand. New capacity starting up this year could put pressure on some refiners to curtail throughputs or to delay full start up of new plants. Sinopec reportedly brought online Anqing refinery s new 70 kb/d CDU was reportedly brought on line at the end of August, raising capacity to 180 kb/d. The expansion also included a new 40 kb/d FCC, a 45 kb/d diesel hydrocracker and a 20 kb/d reformer. In all, Chinese net refinery expansions amount to just over 700 kb/d this year, with the bulk of the additions at the end of the year. PetroChina announced in early September that it plans to start up its new 200 kb/d Pengzhou refinery in Sichuan province in late October. The plant, which was scheduled to start up in April of this year, has already been delayed several times. Concerns have arisen that the severe floods currently plaguing the region could further delay the start up. The plant will process crude from the remote Xinjiang region as well as neighbouring Kazakhstan. The complex also includes an ethylene facility/petrochemical plant. Sinochem s 240 kb/d Quanzhou refinery is also scheduled to start trial runs by the end of this year. The company had reportedly bought its first crude cargo, of Angolan medium sweet Cabinda, scheduled to load in the second half of September. Indian crude runs rose 70 kb/d in July, to 4.5 mb/d, mainly on higher runs from NRL s Numaligarh refinery and HPCL s Visakh plant. Both plants had been shut due to fires in May. HPCL s 170 kb/d Visakh refinery was hit by a second fire in August that killed eight workers. On an annual basis, Indian refinery crude intake stood some 220 kb/d above year earlier levels. India s widening current account deficit and the rupee s steep depreciation (see Demand) are not only forcing the country s government to consider demand reducing measures, but also to limit imports of crude oil by refiners and to look for alternative crude supplies. The Indian government has announced it is considering increasing its purchases of Iranian crude oil, despite mounting pressures from the US to continue reductions to comply with international sanctions. The Indian rupee has depreciated by 20% against the US dollar so far this year, hitting record mb/d Other Asia Crude Throughput 7.5 Jan Mar May Jul Sep Nov Jan Range Average est SEPTEMBER

56 REFINING INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT lows in early September, sharply raising the cost of dollar denominated crude imports (all crude imports except those from Iran are paid in dollars). The Reserve Bank of India has opened a foreign exchange swap window to meet the entire US dollar requirement of the three state owned refiners and marketing companies who need to pay for crude oil purchases in an effort to control volatility in the currency market. India currently imports around 3.8 mb/d of crude. Latest official import statistics show that India purchased only 36 kb/d of Iranian oil in July however, as refiners continued to diversify away from Iranian oil, though tanker data suggest volumes were higher in August. Year to date Indian oil imports from Iran (Jan July) have been cut by almost by half from the same period last year, to 175 kb/d. India has since July 2011 paid for its purchases of Iranian oil in euros and rupees and was in mid July of this year allowed to pay for its oil imports from Iran entirely in rupees. Notwithstanding international sanctions on Iranian crude purchases, issues of insurance, reinsurance, vessel availability and banking facilities have to be resolved for India to significantly increase its purchases of Iranian oil. Russian crude runs in July and August were slightly higher than expected and have been revised up by 40 kb/d and 50 kb/d respectively. Refinery throughputs in July were up by 110 kb/d over the month, to 5.7 mb/d. A 50 kb/d increase came from Rosneft s Tuapse plant, which launched a new 140 kb/d crude unit in July. Other increases came from the company s Achinsk plant which had been running at reduced rates in May and June. Preliminary data for August indicate that runs held steady in that month, at over 5.7 mb/d. If confirmed by official data next month, Russian refinery runs were more than 200 kb/d above year earlier levels in both July and August. Looking ahead, Russian throughputs are set to fall sharply over September and October due to a heavy turnaround season. More than 900 kb/d of capacity is scheduled to be offline in September, falling back to 765 kb/d in October. Elsewhere in the FSU, Kazakhstan s refinery runs fell by 60 kb/d to 250 kb/d in July due to maintenance and upgrading work at the 150 kb/d Pavlodar refinery. In August, the country s second largest refinery, the 100 kb/d Atyrau plant, shut completely to fit an integrated gasoline and diesel hydrotreating unit. mb/d Russia Crude Throughput 4.6 Jan Mar May Jul Sep Nov Jan est mb/d Middle East Crude Throughput Jan Mar May Jul Sep Nov Jan Range Average est In the Middle East, refinery crude throughputs surged by 465 kb/d in June, as operators in Saudi Arabia and Kuwait completed extensive maintenance work. Saudi Aramco s 400 kb/d Yanbu refinery was completely shut in April and most of May for scheduled turnarounds. Kuwait s Mina Al Ahmadi and Mina Abdullah refineries were equally completing extensive turnarounds in April and May with a combined 240 kb/d offline in those two months. The former plant, KNPC s 270 kb/d Mina Abdullah refinery was forced to shut an 80 kb/d CDU on 21 August following a fire. The unit is expected to remain offline for repairs until mid September. Saudi Aramco and Total s 400 kb/d JV refinery in Jubail was reportedly processing around 120 kb/d of Arabian Light crude in the first of two crude distillation units online. The plant will take another 120 kb/d of light crude once the second unit starts up this fall, and will switch to a 28 API, 3% sulphur Arabian Heavy blend once the coker unit is commissioned. The start up of Jubail will have a particularly steep impact on year on year growth in global runs in the first half of 2014, exacerbated by the heavy maintenance and low runs seen in 1H SEPTEMBER 2013

57 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT TABLES Table 1 - World Oil Table Supply 1 and Demand WORLD OIL SUPPLY AND DEMAND (million barrels per day) Q12 2Q12 3Q12 4Q Q13 2Q13 3Q13 4Q Q14 2Q14 3Q14 4Q OECD DEMAND Americas Europe Asia Oceania Total OECD NON-OECD DEMAND FSU Europe China Other Asia Latin America Middle East Africa Total Non-OECD Total Demand OECD SUPPLY Americas 1, Europe Asia Oceania Total OECD NON-OECD SUPPLY FSU Europe China Other Asia Latin America 5, Middle East Africa Total Non-OECD Processing Gains Global Biofuels Total Non-OPEC OPEC Crude NGLs Total OPEC Total Supply STOCK CHANGES AND MISCELLANEOUS Reported OECD Industry Government Total Floating Storage/Oil in Transit Miscellaneous to balance Total Stock Ch. & Misc Memo items: Call on OPEC crude + Stock ch Adjusted Call on OPEC + Stock ch As of August 2012 OMR, OECD Americas includes Chile. 2 As of August 2012 OMR, OECD Europe includes Estonia and Slovenia. 3 As of August 2012 OMR, OECD Asia Oceania includes Israel. 4 Measured as deliveries from refineries and primary stocks, comprises inland deliveries, international marine bunkers, refinery fuel, crude for direct burning, oil from non-conventional sources and other sources of supply. 5 Other Asia includes Indonesia throughout. Latin America excludes Ecuador throughout. Africa excludes Angola throughout. Total Non-OPEC excludes all countries that were members of OPEC at 1 January Total OPEC comprises all countries which were OPEC members at 1 January Net volumetric gains and losses in the refining process and marine transportation losses. 7 As of the July 2010 OMR, Global Biofuels comprise all world biofuel production including fuel ethanol from the US and Brazil. 8 As of the March 2006 OMR, Venezuelan Orinoco heavy crude production is included within Venezuelan crude estimates. Orimulsion fuel remains within the OPEC NGL and non-conventional category, but Orimulsion production reportedly ceased from January Comprises crude oil, condensates, NGLs, oil from non-conventional sources and other sources of supply. 10 Includes changes in non-reported stocks in OECD and non-oecd areas. 11 Equals the arithmetic difference between total demand minus total non-opec supply minus OPEC NGLs. 12 Equals the "Call on OPEC + Stock Ch." with "Miscellaneous to balance" added for historical periods and with an average of "Miscellaneous to balance" for the most recent 8 quarters added for forecast periods. 12 SEPTEMBER

58 TABLES INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT Table 1a WORLD OIL SUPPLY AND DEMAND: CHANGES FROM LAST MONTH'S TABLE 1 Table 1a - World Oil Supply and Demand: Changes from Last Month s Table 1 (million barrels per day) Q12 2Q12 3Q12 4Q Q13 2Q13 3Q13 4Q Q14 2Q14 3Q14 4Q OECD DEMAND Americas Europe Asia Oceania Total OECD NON-OECD DEMAND FSU Europe China Other Asia Latin America Middle East Africa Total Non-OECD Total Demand OECD SUPPLY Americas Europe Asia Oceania Total OECD NON-OECD SUPPLY FSU Europe China Other Asia Latin America Middle East Africa Total Non-OECD Processing Gains Global Biofuels Total Non-OPEC OPEC Crude NGLs Total OPEC Total Supply STOCK CHANGES AND MISCELLANEOUS REPORTED OECD Industry Government Total Floating Storage/Oil in Transit Miscellaneous to balance Total Stock Ch. & Misc Memo items: Call on OPEC crude + Stock ch Adjusted Call on OPEC + Stock ch When submitting their monthly oil statistics, OECD Member countries periodically update data for prior periods. Similar updates to non-oecd data can occur SEPTEMBER 2013

59 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT TABLES Table 2 Table 2 SUMMARY - Summary OF GLOBAL of Global OIL DEMAND Oil Demand Q12 2Q12 3Q12 4Q Q13 2Q13 3Q13 4Q Q14 2Q14 3Q14 4Q Demand (mb/d) Americas Europe Asia Oceania Total OECD Asia Middle East Latin America FSU Africa Europe Total Non-OECD World of which: US Europe 5* China Japan India Russia Brazil Saudi Arabia Canada Korea Mexico Iran Total % of World 69.5% 69.6% 69.2% 69.2% 69.3% 69.3% 69.4% 69.0% 69.1% 69.1% 69.1% 69.3% 68.7% 68.7% 68.8% 68.9% Annual Change (% per annum) Americas Europe Asia Oceania Total OECD Asia Middle East Latin America FSU Africa Europe Total Non-OECD World Annual Change (mb/d) Americas Europe Asia Oceania Total OECD Asia Middle East Latin America FSU Africa Europe Total Non-OECD World Revisions to Oil Demand from Last Month's Report (mb/d) Americas Europe Asia Oceania Total OECD Asia Middle East Latin America FSU Africa Europe Total Non-OECD World Revisions to Oil Demand Growth from Last Month's Report (mb/d) World As of the August 2012 OMR, includes Chile. 2 As of the August 2012 OMR, includes Estonia and Slovenia. 3 As of the August 2012 OMR, includes Israel. * France, Germany, Italy, Spain and UK 12 SEPTEMBER

60 TABLES INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT Table 2a Table OECD 2a - REGIONAL OECD Regional OIL Oil DEMAND Demand 1 (million barrels per day) Latest month vs Q12 4Q12 1Q13 2Q13 Apr 13 May 13 Jun 13 2 May 13 Jun 12 Americas 3 LPG&Ethane Naphtha Motor Gasoline Jet/Kerosene Gasoil/Diesel Oil Residual Fuel Oil Other Products Total Europe 4 LPG&Ethane Naphtha Motor Gasoline Jet/Kerosene Gasoil/Diesel Oil Residual Fuel Oil Other Products Total Asia Oceania 5 LPG&Ethane Naphtha Motor Gasoline Jet/Kerosene Gasoil/Diesel Oil Residual Fuel Oil Other Products Total OECD LPG&Ethane Naphtha Motor Gasoline Jet/Kerosene Gasoil/Diesel Oil Residual Fuel Oil Other Products Total Demand, measured as deliveries from refineries and primary stocks, comprises inland deliveries, international bunkers and refinery fuel. It includes crude for direct burning, oil from non-conventional sources and other sources of supply. Jet/kerosene comprises jet kerosene and non-aviation kerosene. Gasoil comprises diesel, light heating oil and other gasoils. North America comprises US 50 states, US territories, Mexico and Canada. 2 Latest official OECD submissions (MOS). 3 As of the August 2012 OMR, includes Chile. 4 As of the August 2012 OMR, includes Estonia and Slovenia. 5 As of the August 2012 OMR, includes Israel SEPTEMBER 2013

61 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT TABLES Table 2b Table 2b - OECD Oil Demand OIL DEMAND and IN % SELECTED Growth in Demand OECD COUNTRIES in Selected 1 OECD Countries (million barrels per day) Latest month vs Q12 4Q12 1Q13 2Q13 Apr 13 May 13 Jun 13 2 May 13 Jun 12 United States 3 LPG Naphtha Motor Gasoline Jet/Kerosene Gasoil Residual Fuel Oil Other Products Total Japan LPG Naphtha Motor Gasoline Jet/Kerosene Diesel Other Gasoil Residual Fuel Oil Other Products Total Germany LPG Naphtha Motor Gasoline Jet/Kerosene Diesel Other Gasoil Residual Fuel Oil Other Products Total Italy LPG Naphtha Motor Gasoline Jet/Kerosene Diesel Other Gasoil Residual Fuel Oil Other Products Total France LPG Naphtha Motor Gasoline Jet/Kerosene Diesel Other Gasoil Residual Fuel Oil Other Products Total United Kingdom LPG Naphtha Motor Gasoline Jet/Kerosene Diesel Other Gasoil Residual Fuel Oil Other Products Total Canada LPG Naphtha Motor Gasoline Jet/Kerosene Diesel Other Gasoil Residual Fuel Oil Other Products Total Demand, measured as deliveries from refineries and primary stocks, comprises inland deliveries, international bunkers and refinery fuel. It includes crude for direct burning, oil from non-conventional sources and other sources of supply. Jet/kerosene comprises jet kerosene and non-aviation kerosene. Gasoil comprises diesel, light heating oil and other gasoils. 2 Latest official OECD submissions (MOS). 3 US figures exclude US territories. 12 SEPTEMBER

62 TABLES INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT Table 3 WORLD OIL PRODUCTION (million barrels per day) Q13 2Q13 3Q13 4Q13 1Q14 Jun 13 Jul 13 Aug 13 OPEC Crude Oil Saudi Arabia Iran Iraq UAE Kuwait Neutral Zone Qatar Angola Nigeria Libya Algeria Ecuador Venezuela Total Crude Oil Total NGLs Total OPEC NON-OPEC 2 OECD Americas United States Mexico Canada Chile Europe UK Norway Others Asia Oceania Australia Others Total OECD NON-OECD Former USSR Russia Others Asia China Malaysia India Indonesia Others Europe Latin America Brazil Argentina Colombia Others Middle East Oman Syria Yemen Others Africa Egypt Gabon Others Total Non-OECD Processing Gains Global Biofuels TOTAL NON-OPEC TOTAL SUPPLY Includes condensates reported by OPEC countries, oil from non-conventional sources, e.g. Venezuelan Orimulsion (but not Orinoco extra-heavy oil), and non-oil inputs to Saudi Arabian MTBE. Orimulsion production reportedly ceased from January Comprises crude oil, condensates, NGLs and oil from non-conventional sources 3 Includes small amounts of production from Jordan and Bahrain. 4 Net volumetric gains and losses in refining and marine transportation losses. 5 As of the July 2010 OMR, Global Biofuels comprise all world biofuel production including fuel ethanol from the US and Brazil. 6 As of the August 2012 OMR, includes Chile. 7 As of the August 2012 OMR, includes Estonia and Slovenia. 8 As of the August 2012 OMR, includes Israel SEPTEMBER 2013

63 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT TABLES Table 4 ble 4 - OECD OECD Industry INDUSTRY Stocks STOCKS and 1 AND Quarterly QUARTERLY Stock STOCK Changes/OECD CHANGES Government- Controlled Stocks and Quarterly Stock Ch Land in Selected RECENT MONTHLY STOCKS 2 PRIOR YEARS' STOCKS 2 STOCK CHANGES in Million Barrels in Million Barrels in mb/d Mar2013 Apr2013 May2013 Jun2013 Jul2013* Jul2010 Jul2011 Jul2012 3Q2012 4Q2012 1Q2013 2Q2013 OECD Americas Crude Motor Gasoline Middle Distillate Residual Fuel Oil Total Products Total OECD Europe Crude Motor Gasoline Middle Distillate Residual Fuel Oil Total Products Total OECD Asia Oceania Crude Motor Gasoline Middle Distillate Residual Fuel Oil Total Products Total Total OECD Crude Motor Gasoline Middle Distillate Residual Fuel Oil Total Products Total OECD GOVERNMENT-CONTROLLED STOCKS 5 AND QUARTERLY STOCK CHANGES RECENT MONTHLY STOCKS 2 PRIOR YEARS' STOCKS 2 STOCK CHANGES in Million Barrels in Million Barrels in mb/d Mar2013 Apr2013 May2013 Jun2013 Jul2013* Jul2010 Jul2011 Jul2012 3Q2012 4Q2012 1Q2013 2Q2013 OECD Americas Crude Products OECD Europe Crude Products OECD Asia Oceania Crude Products Total OECD Crude Products Total * estimated 1 Stocks are primary national territory stocks on land (excluding utility stocks and including pipeline and entrepot stocks where known) and include stocks held by industry to meet IEA, EU and national emergency reserve commitments and are subject to government control in emergencies. 2 Closing stock levels. 3 Total products includes gasoline, middle distillates, fuel oil and other products. 4 Total includes NGLs, refinery feedstocks, additives/oxygenates and other hydrocarbons. 5 Includes government-owned stocks and stock holding organisation stocks held for emergency purposes. 12 SEPTEMBER

64 TABLES INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT Table 5 TOTAL STOCKS ON LAND IN OECD COUNTRIES Table 5 - Total Stocks on Land in OECD Countries/Total 1 OECD Stocks ('millions of barrels' and 'days') End June 2012 End September 2012 End December 2012 End March 2013 Stock Days Fwd 2 Stock Days Fwd Stock Days Fwd Stock Days Fwd Stock Days Fwd Level Demand Level Demand Level Demand Level Demand Level Demand OECD Americas Canada Chile Mexico United States Total OECD Asia Oceania Australia Israel Japan Korea New Zealand Total OECD Europe 5 Austria Belgium Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Luxembourg Netherlands Norway Poland Portugal Slovak Republic Slovenia Spain Sweden Switzerland Turkey United Kingdom Total Total OECD DAYS OF IEA Net Imports Total Stocks are industry and government-controlled stocks (see breakdown in table below). Stocks are primary national territory stocks on land (excluding utility stocks and including pipeline and entrepot stocks where known) they include stocks held by industry to meet IEA, EU and national emergency reserves commitments and are subject to government control in emergencies. 2 Note that days of forward demand represent the stock level divided by the forward quarter average daily demand and is very different from the days of net imports used for the calculation of IEA Emergency Reserves. 3 End June 2013 forward demand figures are IEA Secretariat forecasts. 4 US figures exclude US territories. Total includes US territories. 5 Data not available for Iceland. 6 Reflects stock levels and prior calendar year's net imports adjusted according to IEA emergency reserve definitions (see Net exporting IEA countries are excluded. TOTAL OECD STOCKS CLOSING STOCKS Total Government 1 Industry Total Government 1 Industry controlled controlled Millions of Barrels Days of Fwd. Demand 2 2Q Q Q Q Q Q Q Q Q Q Q Q Q Includes government-owned stocks and stock holding organisation stocks held for emergency purposes. 2 Days of forward demand calculated using actual demand except in 2Q2013 (when latest forecasts are used). End June SEPTEMBER 2013

65 INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT TABLES Table 6 Table 6 - IEA Member Country Destinations of Selected Crude Streams IEA MEMBER COUNTRY DESTINATIONS OF SELECTED CRUDE STREAMS 1 (million barrels per day) Year Earlier Q12 4Q12 1Q13 2Q13 Apr 13 May 13 Jun 13 Jun 12 change Saudi Light & Extra Light Americas Europe Asia Oceania Saudi Medium Americas Europe Asia Oceania Saudi Heavy Americas Europe Asia Oceania Iraqi Basrah Light 2 Americas Europe Asia Oceania Iraqi Kirkuk Americas Europe Asia Oceania Iranian Light Americas Europe Asia Oceania Iranian Heavy 3 Americas Europe Asia Oceania Venezuelan Light & Medium Americas Europe Asia Oceania Venezuelan 22 API and heavier Americas Europe Asia Oceania Mexican Maya Americas Europe Asia Oceania Mexican Isthmus Americas Europe Asia Oceania Russian Urals Americas Europe Asia Oceania Nigerian Light 4 Americas Europe Asia Oceania Nigerian Medium Americas Europe Asia Oceania Data based on monthly submissions from IEA countries to the crude oil import register (in '000 bbl), subject to availability. May differ from Table 8 of the Report. IEA Americas includes United States and Canada. IEA Europe includes all countries in OECD Europe except Estonia, Hungary and Slovenia. IEA Asia Oceania includes Australia, New Zealand, Korea and Japan. 2 Iraqi Total minus Kirkuk. 3 Iranian Total minus Iranian Light API and lighter (e.g., Bonny Light, Escravos, Qua Iboe and Oso Condensate). 12 SEPTEMBER

66 TABLES INTERNATIONAL ENERGY AGENCY OIL MARKET REPORT Table 7 Table 7 - Regional OECD Imports REGIONAL OECD IMPORTS Table 16 - Refined Product Yields Based on Total 1,2 Input (thousand barrels per day) Year Earlier Q12 4Q12 1Q13 2Q13 Apr 13 May 13 Jun 13 Jun 12 % change Crude Oil Americas % Europe % Asia Oceania % Total OECD % LPG Americas % Europe % Asia Oceania % Total OECD % Naphtha Americas % Europe % Asia Oceania % Total OECD % Gasoline 3 Americas % Europe % Asia Oceania % Total OECD % Jet & Kerosene Americas % Europe % Asia Oceania % Total OECD % Gasoil/Diesel Americas % Europe % Asia Oceania % Total OECD % Heavy Fuel Oil Americas % Europe % Asia Oceania % Total OECD % Other Products Americas % Europe % Asia Oceania % Total OECD % Total Products Americas % Europe % Asia Oceania % Total OECD % Total Oil Americas % Europe % Asia Oceania % Total OECD % 1 Based on Monthly Oil Questionnaire data submitted by OECD countries in tonnes and converted to barrels. 2 Excludes intra-regional trade. 3 Includes additives SEPTEMBER 2013

67 OECD/IEA All Rights Reserved The International Energy Agency (IEA) makes every attempt to ensure, but does not guarantee, the accuracy and completeness of the information or the clarity of content of the Oil Market Report (hereafter the OMR). The IEA shall not be liable to any party for any inaccuracy, error or omission contained or provided in this OMR or for any loss, or damage, whether or not due to reliance placed by that party on information in this OMR. The Executive Director and Secretariat of the IEA are responsible for the publication of the OMR. Although some of the data are supplied by IEA Member country governments, largely on the basis of information they in turn receive from oil companies, neither these governments nor these oil companies necessarily share the Secretariat s views or conclusions as expressed in the OMR. The OMR is prepared for general circulation and is distributed for general information only. Neither the information nor any opinion expressed in the OMR constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities. This OMR is the copyright of the OECD/IEA and is subject to terms and conditions of use. These terms and conditions are available on the IEA website at In relation to the Subscriber Edition (as defined in the OMR's online terms and conditions), all Argus information is sourced from Copyright 2013 Argus Media Limited and is published here with the permission of Argus. The spot crude and product price assessments are based on daily Argus prices, converted when appropriate to US$ per barrel according to the Argus specification of products. Argus Media Limited reserves all rights in relation to all Argus information. Any reproduction of Argus information requires the express prior written permission of Argus. Argus shall not be liable to any party for any inaccuracy, error or omission contained or provided in Argus information contained in this OMR or for any loss, or damage, whether or not due to reliance placed by that party on information in this OMR.

68 OMR Contacts Editor and Head, Oil Industry and Markets Division Antoine Halff Analysts Toril Bosoni (Refining) Charles Esser (Non-OPEC Supply) Diane Munro (OPEC Supply and Prices) Matt Parry (Demand) Andrew Wilson (Stocks/Statistics) Statistics Valerio Pilia Editorial Assistant Annette Hardcastle Contact: (+33) 0 * OilMarketReport@iea.org * 0 - only within France Media Enquiries IEA Press Office (+33) 0 * ieapressoffice@iea.org Subscription and Delivery Enquiries Oil Market Report Subscriptions International Energy Agency BP PARIS Cedex 15, France (+33) 0 * OMRSubscriptions@iea.org (+33) 0 * User s Guide and Glossary to the IEA Oil Market Report For information on the data sources, definitions, technical terms and general approach used in preparing the Oil Market Report (OMR), Medium-Term Oil Market Report (MTOMR) and Annual Statistical Supplement (current issue of the Statistical Supplement dated 9 August 2013), readers are referred to the Users Guide at It should be noted that the spot crude and product price assessments are based on daily Argus prices, converted when appropriate to US$ per barrel according to the Argus specification of products (Copyright 2013 Argus Media Limited - all rights reserved). The Oil Market Report is published under the responsibility of the Executive Director and Secretariat of the International Energy Agency. Although some of the data are supplied by Member-country Governments, largely on the basis of information received from oil companies, neither governments nor companies necessarily share the Secretariat s views or conclusions as expressed therein. OECD/IEA 2013 Next Issue: 11 October 2013