OPEC+ and Short-Term Oil Market Dynamics
This new OIES presentation looks at the extension of the OPEC+ deal to the end of 2022 and implications on oil markets:
- Global oil demand has lost some momentum recently, but the fundamentals remain solid where demand is still expected to grow by 5.6 mb/d in 2021 and further 3.3 mb/d in 2022.
- OPEC+ to unwind the 5.76 mb/d cut by September 2022. OPEC+ producers agreed to ease their output cuts by 2 mb/d between August and December 2021, adding 400 kb/d each month over this period. If the monthly 400 kb/d reductions per month carry on until April 2022, OPEC+ will add 3.6 mb/d to the market. OPEC+ aims to release the remaining 2.16 mb/d in monthly increments of 432 kb/d between May 2022 and September 2022.
- Extension of the agreement until end of 2022 implies there is a buffer of up to 3 months in which OPEC+ may decide not to release the 400,000 b/d increment or increase cut by up to 400 kb/d.
- The baseline adjustment does not affect the monthly increments and OPEC+ total production; it impacts how the monthly increment is distributed among member countries.
- Assuming all the remaining barrels are released back to the market by September 2022, OPEC+ production can exceed 42 mb/d but the projected additional barrels released from OPEC+ back to the market in 2022 are likely to be less than the headline 5.76 mb/d figure.
- Considering implied production capacity and maximum historical production levels sustained over a period of 3-6 months we estimate that OPEC+ producers can return only 4.4 mb/d of restrained supplies 1.2 mb/d below target.
- With the supply path for OPEC+ clear the balance of risks to our price outlook is now limited to demand and geopolitical risks.
- Despite the increase in production between August 2021 and December 2021 the market is projected to remain in deficit in Q3 and Q4 2021 and for the year as a whole.
- Depending on global oil demand outcomes and the return of Iranian barrels, the market could switch into surplus in 2022 if OPEC+ stick to their deal showing the importance of OPEC+ balancing role in a uncertain environment.