This week finally saw good news for oil consumers. The Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency have revised down their demand forecasts, indicating that prices finally have significant downside potential. But OPEC is ready to change course. “Strict new lockdown measures amid rising Covid cases in China have led to a downward revision to our second-quarter 22nd quarter global oil demand outlook for the full year,” the report wrote. IEA in its latest report. oil market report This week.
The agency also noted that members of the Organization for Economic Co-operation and Development consumed less oil than expected, prompting the International Energy Agency to revise its demand forecast for the year ahead. 260,000 barrels per day out of a total of 99.4 million barrels per day last month. .
At the same time, the agency pointed to steady and large production additions in the first quarter of the year, noting that non-OPEC producers are leading them. When non-OPEC producers drive production increases, it’s worth watching OPEC more closely than usual for its response.
That answer has yet to come, but the cartel itself is also revising its demand forecast for this year. And it examines it much more than the International Energy Agency.
In the latest version of its monthly oil market report, OPEC said global oil demand would be 480,000 barrels per day lower than forecast. the cartel Devis Slowing economic growth due to the war in Ukraine is one reason for scrutiny, and the Covid-related shutdown in China is another.
As for the offer, the IEA seems rather serene. After sounding the alarm over the possibility of losing 3 million barrels per day of Russian oil exports due to Western sanctions, the agency has now declared the coordinated release of a total of 240 million barrels of crude, of which 180 million barrels per day will be released by the United States. , which would offset the impact of the loss of Russian supplies.
The IEA seems to assume that the loss of Russian supplies will be temporary – just as the effect of the liberalization of reserves will only last for the duration of the release, if not less. And OPEC may have a nasty surprise in store for members of the International Energy Agency who are ready to dip into their own strategic reserves to normalize benchmark prices.
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Earlier this month, OPEC only met with representatives of the European Union Tell them They will not intervene if Russian oil exports are completely stopped.
“It is likely that we will see a loss of more than 7 million barrels per day in Russian exports of oil and other liquids, due to current and future sanctions or other voluntary measures. Given current demand forecasts, it will be next to impossible to replace that,” Cartel Secretary General Muhammad Barkindo said. the size “.
However, with the demand outlook being revised, only OPEC could decide to revise its own production plans as well. With millions of Russian oil off the (official) chart and very little chance of Iranian barrels coming back just yet, it’s up to OPEC and the US to fill the void. If, that is to say, they want it.
US producers seem to be bracing for the idea of increasing production, with prices so high that their profit margins are big enough motives More digging. Meanwhile, OPEC has only increased its production 67,000 barrels per day last month. This is because some OPEC members have seen a decline rather than growth in their oil production, but Saudi Arabia has significantly reduced its share of production.
At the same time, OPEC has revised its U.S. oil production forecast upwards for this year, and history shows that when U.S. oil production increases, OPEC is not not a happy cartel and is taking steps to counter this growth. Now, with this production growth forecast paired with a slower demand growth forecast, OPEC’s response may only be a matter of time.
As for the nature of the possible reaction, it is not difficult to guess. Right now, OPEC is selling its oil at prices not seen years ago. And buyers have few alternatives between Western sanctions on Russia and US sanctions on Venezuela and Iran. It’s a seller’s market.
However, news of the re-emergence of the Covid virus in China has raised suspicions that the market is about to reverse. After all, China is the world’s largest importer by absolute volume and already imports down significantly due to closures. If China needs less oil, less oil must be supplied.
Europe seems to be presenting itself as a bigger customer of OPEC oil at the moment, but that will be a temporary thing as the EU tries to wean itself off Russian hydrocarbons by replacing them with hydrocarbons from elsewhere.
Europe is not a long-term growth market for OPEC oil, and as such, frankly, is not an important market for the cartel. This is especially true for the two OPEC producers who have spare capacity to increase production significantly.
Therefore, if the bearish outlook for oil continues to escalate, depending on how the spread of the coronavirus unfolds in China and what the European Union does about Russian oil, we could see OPEC revise its production growth agreement with Russia and the rest of its OPEC+. partners before this year. To finish.
By Irina Slough for Oilprice.com
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