December 2015 – January 2016 Update

  • The U.S. Energy Information Administration (EIA) estimates that global oil inventories grew by an average of 1.7 million barrels per day (b/d) in December and January, similar to the 2.1-million b/d build during the same time last year and the previous two-month average of 2.0 million b/d (Table 1). Although some major producers outside of the Organization of the Petroleum Exporting Countries (OPEC) are starting to experience production declines as a result of sustained low oil prices, robust OPEC supply growth, coupled with moderate global demand growth, continue to bolster record-high inventory builds. Estimated inventories held by countries in the Organization for Economic Cooperation and Development (OECD) in December and January stood at more than 3.0 billion barrels, the highest amount on record (Table 1).
  • Crude oil prices declined in January as global oil inventories continued to grow. The North Sea Brent front month futures contract averaged $32 per barrel (/b) in January (Table 2), $7 per barrel lower than December. Estimates that global inventories continue to build at a robust rate are supported by contango (when near-term prices are lower than further dated ones) in the Brent futures curve. In December and January, the Brent 1st-13th spread averaged about -$8 per barrel (Table 2).
  • Global petroleum and other liquids production1 averaged 95.3 million b/d in December and January, 0.6 million b/d higher than the same time last year. Total OPEC production, led by Iraq and Saudi Arabia, accounted for all the growth, offsetting a 0.5 million b/d decline to total non-OPEC production, led by producers in Eurasia. Although U.S. production was flat compared with the same time last year, it declined by 0.3 million b/d in December and January compared with the previous two-month period, reflecting a decline in Lower 48 onshore production driven by persistently low oil prices (Table 3b and Table 3c of the Short-Term Energy Outlook (STEO)).
  • Global petroleum and other liquids consumption2 averaged 93.7 million b/d in December and January, 0.9 million b/d higher than the same time last year. Total non-OECD consumption, led by Asia, accounted for all the growth (Table 3d of the STEO).
  • Iran’s petroleum and other liquids production averaged 3.5 million b/d in December and January, of which 2.8 million b/d was crude oil and the remainder was condensate and natural gas plant liquids (Table 1). International sanctions related to Iran’s nuclear program were lifted on January 16, following verification from the International Atomic Energy Agency that Iran had completed the key physical steps required to trigger sanctions relief. Nuclear-related sanctions relief will lead to an increase in Iran’s oil production and exports, although it’s uncertain how quickly Iran will ramp up its production and exports. Initial post-sanction increases in Iranian exports will most likely come from storage, while meaningful production increases will occur after some of the storage is cleared.
  • Global unplanned supply disruptions averaged almost 2.3 million b/d in January 2016, 0.9 million b/d lower than in December 2015 because of changes to Iran’s disruption and Libya’s estimated production capacity. Iran’s crude oil production disruption, which was estimated at 0.8 million b/d, ended in January 2016 when nuclear-related sanctions were lifted. Going forward, any difference between Iran’s crude oil production capacity and its crude oil production level will henceforth be considered surplus capacity. Libya’s disruption, which is calculated as the difference between effective production capacity and production, was 0.1 million b/d lower in January 2016 compared with the previous month as Libya’s capacity was revised downward while production was unchanged. The reduction to Libya’s production capacity reflects curtailed storage capacity at the Es Sidra and Ras Lanuf terminals, which were extensively damaged in January (Figure 1 and Figure 2).
  • Global surplus crude oil production capacity averaged 1.8 million b/d in December and January, 0.3 million b/d lower than at the same time last year but 0.3 million b/d higher than the previous two-month period. Most of the increase is attributed to Iran, as the country ramps up its capacity in preparation of increasing its production now that key sanctions are lifted. Saudi Arabia, currently the largest holder of surplus capacity, reduced its production slightly in December and January, reflecting decreased demand for crude oil burn in Saudi Arabia’s electricity sector (Table 3c of the STEO). Surplus capacity is typically an indication of market conditions, with an amount below 2.5 million b/d indicating a tight market. However, the high global oil inventory level and continuous inventory builds make the current low surplus capacity level less significant.
  • EIA revised the preliminary estimates of petroleum and other liquids production and consumption for the previous two-month period. Global petroleum and other liquids production was revised upward by 0.3 million b/d to average 96.2 million b/d and global consumption was revised down by 0.1 million b/d to average 94.3 million b/d in October and November 2015.