Why the market doesn’t need much more OPEC+ oil
While the Biden Administration calls on OPEC+ to boost production more than planned, the major oil forecasters scaled back their outlook on how much OPEC+ crude the market would need.
Earlier this week, the White House called on the OPEC+ group to increase oil production more than they had planned in order to tame rising gasoline prices that could derail the global economic recovery.
However, also this week, the U.S. Energy Information Administration (EIA), the International Energy Agency (IEA), and OPEC itself revised down their forecasts for the call on OPEC crude this year and next, Julian Lee of Bloomberg News notes.
In the August Short-Term Energy Outlook (STEO), the EIA estimated that OPEC crude oil production would remain lower than calls on OPEC through the third quarter and fourth quarter of 2021. This quarter, demand for OPEC’s oil will exceed production by 1.0 million bpd. However, this difference will drop to 300,000 in the fourth quarter.
“[B]eginning in 1Q22, we forecast OPEC crude oil production will outpace calls on OPEC production, contributing to increased crude oil inventories and lower crude oil prices,” the EIA said on Tuesday, a day before the U.S. Administration urged OPEC+ to open the taps.
“OPEC+ leaders are expected to reconvene in December 2021, when we expect some adjustments to their curtailment plan,” the EIA stated.
The IEA, for its part, warned on Thursday that new mobility restrictions in Asia to fight the Delta variant were set to slow global oil demand growth in the second half of 2021, although it left its full-year demand growth estimates largely unchanged.
“The immediate boost from OPEC+ is colliding with slower demand growth and higher output from outside the alliance, stamping out lingering suggestions of a near-term supply crunch or super cycle,” the IEA said in its closely-watched Oil Market Report published on Thursday.
Even after the deal from last month, OPEC+ is estimated to pump about 200,000 bpd below the call on its crude in Q4 2021, compared with a deficit of up to 2 million bpd expected before the July agreement.
“But the scale could tilt back to surplus in 2022 if OPEC+ continues to undo its cuts and producers not taking part in the deal ramp up in response to higher prices,” said the IEA.
OPEC itself revised down demand for its crude in its monthly report on Thursday. Demand for OPEC crude in 2021 was revised down by 200,000 bpd from last month’s forecast to stand at 27.4 million bpd. Demand for OPEC crude next year was revised down by 1.1 million bpd from the previous month’s assessment to stand at 27.6 million bpd.