OIES Oil Monthly – Issue 16
The new issue of OIES Oil Monthly, including our latest short-term oil market outlook to 2023, is now available.
– The recovery in Russian output and refining activity in May/June has led us to revise down the size of the expected disruptions in Russian oil production by year-end to 1.8 mb/d from 2.6 mb/d previously in our reference case. In June, Russian production is estimated to have risen m/m by 550,000 b/d to 10.7 mb/d, rebounding to 300,000 b/d below pre-war levels from 1 mb/d in April. In our reference case Russian output holds steady in July above 10.5 mb/d and starts slipping again from August-onwards as EU sanctions come into force. We expect disruptions to peak at 2.1 mb/d in February 2023 and average at 2 mb/d for the year. This constitutes the upper bound of the expected range of Russian crude shut-ins. On the lower bound, Russian disruption is expected to reach 1 mb/d by year-end and averages 1.2 mb/d in 2023.
– Global oil demand growth is unchanged to 2.2 mb/d in 2022 and is upgraded to 1.6 mb/d in 2023. OECD demand continued to outperform expectations in H1 2022 on strong pent-up demand but rising pressures to macro-outlook are set to squeeze further growth gains after Q3. Further COVID outbreaks and China’s stance towards its zero-COVID policy are dictating the demand outlook in H2 and 2023, but we still expect Chinese demand growth to pick-up in both years by 0.2 mb/d in 2022 and 0.4 mb/d in 2023. Overall, global oil demand growth is expected to ease y/y to 1 mb/d in H2 2022 from 3.4 mb/d in H1. Risks to the oil demand outlook are tilted to the downside, with negative pressures rising from Q4-onwards and well into H1 2023.
– Global oil supply growth is upgraded to 5.3 mb/d in 2022 and remains unchanged to 0.4 mb/d in 2023. Despite the limited Russian supply disruption so far, global oil supplies are little improved as underproduction from OPEC+ producers deepens, non-OPEC growth remains constrained and geopolitical disruptions elsewhere (i.e., Libya, Nigeria, FSU) are on the rise as the prospects of sanctions lifted from either Iran or Venezuela continue to fade away. Near-term supply pressures ease as SPR releases are providing some relief, but beyond the near-term, global supplies remain vulnerable on the elevated geopolitical risks, the end of SPR release in October, and OPEC+ output returning fewer barrels as most producers hit their maximum capacity.
– The products crack spreads have eased in part due to economic slowdown but remain elevated by historical standards and are likely to remain supported till end of this year for a couple of reasons. First, there are no signs that China will change its policy on exports of products. Second, the possibility that high natural gas prices could induce a shift into petroleum products. Lastly, the EU securing products from other parts of the world as it reduces its purchases of Russian products.
– Our Reference forecast for Brent is downgraded by $1.9/b to $111/b in 2022 and is upgraded by $3.6/b to $106.4/b in 2023. Negative supply/demand pressures dragged the outlook lower by $5.7/b in Q3 but barring a sharp deterioration in global demand we still expect prices to be sustained in the $110s heading to Q4. The balance of risks remains firmly tilted to the downside in H2 2022 and early-2023, but the imbalance is set to ease in H2 2023 as supply-side risks build to the upside anew.
– We project a 0.7 mb/d surplus in 2022 and a -0.5 mb/d deficit in 2023. The expected surplus in 2022 is upgraded by 340,000 b/d driven mainly by the revisions in Russian output, but in 2023 the market deficit remains largely unchanged. The outlook is surrounded by elevated uncertainty amid the realization of Russian disruptions, policy measures, as well as the global demand responses to oil prices and slower economic growth and China’s rebound after the lifting of COVID lockdowns. The replenishment of OECD stocks though is still seen slow-moving throughout, providing strong support to prices well into 2023.