OPEC Reference Basket July 2014

The OPEC Reference Basket (ORB) extended its previous month’s gains by nearly
$2.50 in June to reach its highest value this year, uplifted by a surge in crude oil
outright prices. For most of June, global crude oil markets were rattled by supply
concerns due to the ongoing crises in Libya and Ukraine, while the geopolitical tension
in Iraq has fuelled fears of disruption in exports from the Middle East region. This is
despite the fact that crude oil markets were adequately supplied during the month. In
fact, some markets were over supplied amid poor refining economics, which caused
physical crude oil markets in many regions to weaken significantly. Physical crude
markets were under pressure with the differentials of physical crudes to their respective
benchmarks at their lowest in over a year in most markets.

On a monthly basis, the ORB improved to an average of $107.89/b in June, up $2.45,
or 2.33% over the previous month. On a year-to-date basis, the Basket was higher, the
first time since December 2012, compared to the same period last year. The Basket
year-to-date value stood at $105.30/b compared to the $105.09/b average of last year,
21¢ or 0.20% higher.


OPEC reference basket

All Basket component values increased in June mainly due to the uplift in outright
prices of their respective benchmarks and pricing formula elements. Benchmark prices,
particularly Brent, surged in response to fresh geopolitical tension in Iraq in addition to
the ongoing conflicts in Libya and Ukraine that raised supply disruption concerns,
increasing the geopolitical risk premium.
Nevertheless, this support for the component values was countered by pressure from
lacklustre physical crude demand on the part of major buyers and weak refining
margins. A narrowing in refining margins has hit European demand for both sweet and
sour crudes, while large customers such as China have been buying less West African
crudes due to high product stocks, cheaper crude in other markets and higher freight
rates. West African oil has become relatively expensive for Asian importers due to a
high premium of Brent crude oil, against which it is benchmarked, to Dubai crude.
Asia’s crude demand has also been muted as weak demand for oil products coupled
with excess regional supply are expected to keep refinery operating rates lower
through the third quarter and into the end of the year.