Global Economy1 and Petroleum Industry2
The global economy continued its recovery in 2017, reflecting a rebound in investment, manufacturing activity and trade. Global GDP growth is estimated to have picked up from 2.4% in 2016 to 3% in 2017 (above earlier forecasts), with growth increasing in most of the world’s economies. Global investment growth was supported by favorable financing costs, rising corporate profits and improved business sentiment across both advanced and emerging economies. This, combined with a recovery in global manufacturing, strengthened the global trade significantly. Energy and metals prices were higher in 2017.
In Euro Area, growth gained substantial momentum in 2017, reaching an estimated 2.4%, 0.7% higher than previously expected. The unemployment rate reached its lowest level since 2009. Domestic demand, exports, and imports improved. Strong economic growth led European equity markets higher (Eurostoxx 600 +7.6%, UK FTSE 100 +4.3%, Germany DAX 30 +13.8%).
In United States, growth picked up in 2017 to an estimated 2.3%, supported mainly by strengthening private investments, rising corporate profits, a weakening dollar and robust demand. The U.S. Federal Reserve continued to normalize monetary policy in 2017, raising interest rates and starting to gradually reduce the size of its balance sheet.
Growth in China is estimated to have reached 6.8% in 2017, also higher than forecasts, reflecting continued fiscal support and the effects of reforms, as well as a stronger than expected exports increase. In Russia, economic activity in 2017 was stronger than previously expected, with growth reaching an estimated 1.7%, driven by higher oil prices.
€/$ Exchange Rate
Average 2017 exchange rate 1.13 €/$
1 Source: World Bank, World Economic Outlook Update, January 2018
2 Source: OPEC, “Monthly Oil Market Report”, December 2017
World oil demand growth3 is reached 1.6 mb/d in 2017, well above the initial forecast and at similar levels as in the last three years, taking global demand to 97.8 mb/d. Higher than expected consumption in transport and industrial sectors in OECD Europe contributed most of the upward revisions. Regarding non-OECD, China oil demand growth has been robust in 2017 as the petrochemical and the transportation sectors continued to expand at a high pace, and the overall economic activities improved from initial expectations.
Supply growth in 2017 reached 0.4 mb/d, with non-OPEC production (mainly the US, Canada and Kazakhstan), partly offset the effect of OPEC decision to control production and exports, with global supply at 97.4 mb/d.
Brent oil averaged $55/bbl in 2017, up 22% from 2016, while being volatile throughout the year. Despite an agreement by OPEC and non-OPEC producers to cut production, oil prices dropped to $46 in mid-2017, reflecting a rebound in U.S. crude oil output and rising production from Libya and Nigeria before increasing later in the year on strengthening demand, falling inventories and an extension of the production cuts agreement until the end of 2018.
In terms of crude differentials, the Brent-WTI spread widened in 2H17, averaging $3.9/bbl in FY17. Brent vs Urals in 2017 decreased by $0.6/bbl, to $1.0/ bbl as Russian exports, particularly from the Baltic ports, were lower, while crude demand in the region was strong.
Brent Crude oil Prices
Average 2017 $55/bbl
3 Source: OPEC, “Monthly Oil Market Report”, IEA - Oil Market Report, March 2018
Benchmark refining margins4
Refining margins had a strong 2017, on the back of tight supply / demand balances and significant outages, especially in 3Q. More precisely and according to Reuters, Med benchmark cracking margin averaged $5.1/bbl, +$1.1/ bbl higher y-o-y and Med benchmark Hydroskimming margin $3.3/bbl, increasing by +$1.7/bbl y-o-y.
Hydroskimming Margins ($/bbl)
Brent Differential – Urals ($/bbl)
Average 2017 $1/bbl
4 Source: Reuters
Oil Product Cracks
Fuel oil rose to the highest levels in recent years and was the key driver of margins in the Mediterranean, mainly due to the reduced availability of heavy crude, following reduction in supply from OPEC, while diesel recovered from the 2016 lows. Light-ends cracks were almost unchanged during 1H17, while during the second half of 2017, increasing oil prices and unplanned refining outages affected benchmark margins.
5 Based on Brent prices
Greek Market6
The Greek economic recovery continued in 2017. Economic activity, completion of the second EU programme review and significant progress on the third, as well as the Greek government bond issue during summer 2017 supported confidence and improved macroeconomic backdrop in the country. Banks' reliance on ECB liquidity and Emergency Liquidity Assistance (ELA) from the Bank of Greece has fallen below EUR25 bln for the first time since the Greek crisis and deposits have been starting to improve. Employment growth had a positive impact on income and private consumption and international recovery is supporting tourism revenue. Yields on 10Y Greek bonds fell, particularly in 4Q. However, inflation and wage growth are still weak and concerns around the unemployment, the banking system and Greek debt sustain.
Regarding developments in the Greek oil products market, in 2017 domestic fuels demand was 6.9MT, 1.9% lower compared to 2016. Aviation fuel consumption reached 1.15MT (+11%), growing for 5th consecutive year, while bunkering fuel demand increased by 18% to 2.8MT.
6 Source: ECB, World Bank, January 2018