OPEC Reports Strong USGC Bunker Demand, Predicts a Rebalancing of Oil Markets by Year End

OPEC has warned of a daily supply deficit during the second half of 2016.

The Organization of the Petroleum Exporting Countries (OPEC) in its latest monthly report (MOMR) notes that strong bunker demand in the U.S. Gulf Coast (USGC) during the last several weeks has caused the fuel oil market to recover some ground, with the USGC high sulfur fuel oil crack gaining almost $1 to average around minus $16 per barrel in May.

The demand comes amidst increasing requirements from Mexico, the report goes on to explain.

OPEC data also revealed that residual fuel oil stocks fell by 2.4 million barrels (mb) in April to stand at 77.4 mb: "At this level, they stood 1.5 mb, or 2.0 percent, above the same month a year ago, but remained 8.4 mb, or 9.7 percent, lower than the latest five-year average," the report states, adding that "The fall in residual fuel oil stocks was a result of increases in residual bunker demand."

OPEC also used the occasion of its monthly report to reiterate its message that production declines in Nigeria and Canada (the former posting loses of 100,000 barrels per day in May), combined with global demand growth continuing to rise by 1.20 million barrels daily, will result in the world oil market being better balanced towards to the end of this year.

The report stated, "Shutdowns in Nigeria and Canada tightened the oil market markedly and brought supply and demand more closely into alignment earlier than many had expected, bolstering prices."

Although it conceded that developing countries will add some 270,000 barrels a day to inventories in the second half of 2016, OPEC stressed this will be offset by a decline of 280,000 barrels daily from member countries of the Organization for Economic Co-operation and Development.

OPEC predicts that if its members keep pumping at May's rate, there will be a daily supply deficit of 160,000 barrels in the second half of 2016.

OPEC seems considerably more optimistic about the market compared to last November, when a private document leaked to the media revealed it expected crude prices to remain under pressure through to 2019.