The world needs more “OPEC +” oil to balance supply and demand

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The world is currently looking for the "OPEC +" alliance to increase production even more to achieve balance in the market oil Over the coming months, this matter is subject to everyone's agreement. But there is less consensus on how much crude oil coalition members will have to pump.

The International Energy Agency, the US Energy Information Administration and the Organization of the Petroleum Exporting Countries (OPEC) say global oil demand will continue to recover until at least the end of 2022.

At that point, the three organizations see consumption exceeding comparable 2019 levels and reaching new highs.

But there is still some disagreement about the paths consumption takes to reach these new highs.

optimistic forecast

The IEA estimate is the most optimistic of the three major institutions' forecasts.

Unlike the International Energy Agency and OPEC, the US Energy Information Administration does not see a significant seasonal decline in demand at the beginning of 2022, with the continued economic recovery that offsets almost all the seasonal effects that usually hinder oil demand in the first half.

As a result, the US Energy Information Administration believes that global oil demand may return above the corresponding pre-Covid level as soon as possible in the second quarter of 2022.

OPEC sees oil demand back above the pre-Covid level in Q3 2022, with the International Energy Agency adopting the more cautious view on recovery and joining the consensus that oil demand will return to the pre-Covid level in the last quarter of 2022. .

The three organizations that provided the estimates see oil demand growth slowing back towards the kind of levels recorded before 2020, as the initial impact of the COVID-19 pandemic wanes and stops affecting annual comparisons.

The necessity of "OPEC +" cohesion

No organization sees the demand for oil peaking on a global basis, but the International Energy Agency stands out as the only one among the three organizations that has predicted that consumption in the developed countries of the Organization for Economic Cooperation and Development will fall below the levels of the previous year in the last quarter of 2022, Europe being the first region to see a decline in consumption.

But the return of demand growth rates to the normal level does not mean that the oil market has returned to balance - far from it.

Having done an admirable job of sticking to production targets during the first phase of the oil recovery, the "OPEC +" coalition of oil-producing countries now needs to show the same cohesion during the next phase.

So far, the coalition has to adjust to a recovery that is slower than envisaged in the April 2020 agreement, which requires delays in easing targets and additional cuts by Saudi Arabia.

erosion of stocks

This is about to change. The original agreement did not provide for any further increase in production until its expiration at the end of April 2022, but that would leave the world short of crude oil, with surplus stocks accumulating during almost the height of the epidemic but they were eroded.

A proposal to increase production targets over the coming months faltered when the United Arab Emirates objected to a Saudi proposal to extend the agreement until the end of 2022, unless it obtains a higher baseline from which to make its own cuts.

But the world needs more OPEC+ oil over the next 18 months.

in short supply

When comparing the expectations of the three organizations on the demand for “OPEC +” crude obtained by subtracting production from outside “OPEC +”, “OPEC” condensate and natural gas liquids (light forms of oil from gas fields and gas processing plants) from the global demand for Oil - With June production levels, the shortage becomes apparent.

Reports show a shortage of “OPEC +” crude by about two million barrels per day less than what is required to balance supply and demand globally in the current quarter.

The shortage of oil supply from “OPEC +” crude will rise to about 3 million barrels per day in the last quarter of 2021.

But the forecasts for the first half of 2022 are much less consistent, reflecting different views on demand according to the three agencies' estimates.

Cautious forecast

In stark contrast to the expectations of the US Energy Information Administration, which sees the need to pump more than 4 million barrels per day of “OPEC +” crude above production levels last month, “OPEC” and the International Energy Agency see a period of relative weakness, which may require Short cut production targets.

The consensus goes back to expectations in the second half of 2022, when the three agencies see that the world needs between 4 million and 5 million barrels per day of crude oil from the “OPEC +” countries more than what it got in June.

It is indisputable that "OPEC +" needs to pump more oil. But how much it needs to pump depends on whether you share the EIA's more optimistic view of demand, or the more cautious forecasts of the International Energy Agency and OPEC.

The difference between 2 million and 3 million barrels per day for a period of up to six months. This will require practical management of the oil supply by the group of producers (OPEC+).

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