OIES Oil Monthly – Issue 15
The new issue of OIES Oil Monthly, including our latest short-term oil market outlook to 2023, is now available.
– EU’s recently agreed embargo on Russian oil has led us to revise upwards our reference case of the expected disruptions in Russian oil production by year-end to 2.6 mb/d from 1.6 mb/d previously. Our reference case this month however constitutes the upper bound of the expected range of Russian crude shut-ins that are now seen confined between 1.5 mb/d and 2.6 mb/d ending-2022. Considering the end-of-year timetable of the EU embargo and of the prohibition of EU operators from insuring and financing the transport of Russian oil to third-party countries, the impacts on Russian supplies may not be fully realised before 2023.
– Global oil demand growth is revised lower by 0.1 mb/d to 2.2 mb/d in 2022 and by 0.11 mb/d to 1.4 mb/d in 2023. The downward revisions in both years reflect mainly the inflationary pressures weighing on the price sensitive non-OECD demand outlook, while China’s extending zero-COVID policy constraints a strong demand rebound in H2. Overall, risks to the demand outlook are tilted to the downside and the risk of demand responses to higher oil prices and slower economic growth increases in 2023.
– Global oil supply is projected to grow by 4.9 mb/d in 2022 and 0.4 mb/d in 2023. Global supplies find little comfort as most OPEC+ struggle to meet their quotas, the prospects of reaching an Iran nuclear deal in the very near-term have diminished, US shale growth remains constrained by surging cost pressures and capital discipline, and non-OPEC supply elsewhere remains price inelastic due to years of underinvestment and capacity losses during COVID. In the near-term, the crude market finds some relief from the continued SPR releases, but this will be temporary.
– The products market tightness that started even before Russia’s invasion of Ukraine continues to deepen as it now spreads across regions and products. EU products markets saw some relief by hiking imports from the US and Asia, but the products market in the US is also tightening due to the refinery closures in 2020/2021 and shortages of key feedstock from Russia due to sanctions. Asian markets are also becoming increasingly tight as regional demand picks up amid China’s strict export quotas and refiners in India operating at, or near, maximum capacity. For now, pent-up demand is offsetting some of the negative impacts of record-high prices on oil demand, but once the exogenous COVID recovery settles demand responses are bound to follow.
– Our Reference forecast for Brent is upgraded by $7.4/b to $112.8/b in 2022 and by $3.7/b to $102.8/b in 2023. The recent price hike is seen persisting throughout 2022 and could be exaggerated by the tightness in products market, before beginning to ease towards year-end and 2023. Heightened oil price volatility advances in 2023 and risks to the outlook are now tilted to the downside on the lower realization of Russian disruptions followed by negative demand pressures that intensify from Q4-onwards. Brent could range between $94.8 mb/d and $130/b on a monthly basis in the remainder of 2022, while the range averages between $83.1/b and $113.8/b in 2023.
– We project a small 0.4 mb/d surplus in 2022 and a -0.6 mb/d deficit in 2023. The oil market is still seen at a small surplus in 2022, but market deficits are expected to re-emerge sooner from Q4-onwards deepening the overall deficit in 2023. OECD stocks remain under severe pressure throughout the remainder of the year before the deficit eases only slightly in 2023, suggesting that prices could continue to endure strong support by the slow stocks’ replenishment well in 2023.