OIES Oil Monthly – Issue 23
The new issue of OIES Oil Monthly, introducing our first oil market outlook for 2024, is now available.
– We have upgraded Russia’s crude oil production by 340 kb/d to 10.57 mb/d in 2023 from the previous 10.23 mb/d forecast and expect Russian supply to average 10.44 mb/d in 2024, a y/y decline of 130 kb/d. Russian liquids output (including condensates) reached 11 mb/d in February, holding near pre-war levels and is expected to decline to around 10.4 mb/d by April due to the announced 500 kb/d ‘voluntary’ crude output cuts that started in March and will be maintained to the end of 2023. This now reflects our Reference case in which forecast Russian crude production disruptions in 2023 are halved this month to 470 kb/d from 810 kb/d compared to pre-war Jan/Feb-22 levels. For 2024, we assume that the Russian ‘voluntary’ cuts are not reversed resulting in disruptions averaging 600 kb/d versus the Jan/Feb-22 baseline.
– Global oil demand is forecast to grow by 1.6 mb/d in 2023, broadly unchanged from last month and by 1.8 mb/d in 2024. A stronger-than-previously-expected start to the year, particularly in the non-OECD, is supportive to the outlook, but we expect global demand growth on a H2-over-H1 basis to be more evenly distributed. China and India are expected to account for nearly half global demand growth in both 2023 and 2024, worth around 800 kb/d annually combined. In the OECD however, ongoing macro-pressures are forecast to keep demand growth to 300 kb/d in 2023 and 360 kb/d in 2024, from 1.2 mb/d last year. In terms of products, jet fuel demand growth is forecast to dominate products in both years, rising 925 kb/d in 2023 and 640 kb/d in 2024, while still remaining just 94% of 2019 levels on average next year.
– Global oil supply is forecast to grow by 1.3 mb/d in 2023, 240 kb/d lower than our forecast last month, and by 1.9 mb/d in 2024. On April 2, eight OPEC+ producers announced a 1.16 mb/d voluntary cut in total starting in May and lasting until the end of 2023, in addition to their existing quotas and Russia’s 500 kb/d voluntary cut. Unlike October’s cuts, the latest voluntary cuts refer to ‘real’ rather than ‘paper’ barrels, as all participating producers have been meeting their targets and the new cuts will lead to a decline in OPEC+ oil production, 1 mb/d of which will originate from OPEC producers and the rest from non-OPEC+. Non-OPEC growth is projected at 1.2 mb/d led by the US, Brazil, Canada and Norway. In 2024, non-OPEC crude growth is expected to be halved relative to this year at 570 kb/d, although US and Brazil will remain the key contributors. OPEC crude output in 2024 is forecast to rise by 1 mb/d, assuming the reversal of the extra cuts from January-onwards.
– We have revised our Reference forecast for Brent to $88.0/b in 2023 and $88.2/b in 2024. The latest banking crisis in the US and EU has aggravated macro uncertainty, particularly in Advanced Economies. Moreover, we now consider that resilient Russian supply is fully priced-in. As a result, we have cut our Brent outlook for 2023 by $6.7/b from $94.6/b last month. But the planned OPEC+ extra cuts provide support to the outlook later in the year, with Brent projected to rise into the $90s on a sustained basis in the second half and average $95.6/b in Q4. The assumed reversal of the OPEC+ voluntary cuts at the beginning of next year under our Reference case is expected to push prices back to $87.9/b in Q1 2024, with available spare capacity within OPEC, as well as healthier stock levels capping prices close to $90/b in the remainder of the year. The Brent Prospect stands at $86.1/b and $86.5/b in 2023 and 2024, respectively, around $2/b below the Reference forecast.
– The balance of price risks remains tilted to the downside in both 2023 and 2024, but negative pressures in 2023 have now eased to -$1.9/b on balance, as the upside potential intensifies in H2 reflecting a stronger Chinese rebound or a faster monetary policy easing. Downside demand pressures dominate again in 2024 driven by the risk of the recent credit crunch leading to a protracted recession. But these are partly offset by supply risks shifting to the upside on balance next year, reflecting the uncertainty over OPEC+’s next steps, Russian supply and non-OPEC growth.
– The oil market balance is forecast at a -0.3 mb/d deficit in 2023 and -0.1 mb/d deficit in 2024. The oil market is seen near balance in both years, with balances now expected to flip into a marginal deficit in Q2 2023 due to the announced OPEC+ output cuts, but the expected tightness in H2 has eased by 180 kb/d to -870 kb/d relative to last month’s forecast.