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Market News Oil market bearish factors increase, OPEC may consider revising output increase agreement
Oil market bearish factors increase, OPEC may consider revising output increase agreement
Both the International Energy Agency, the IEA and OPEC, have revised their oil demand forecasts, suggesting that prices could see a material decline in the coming months. The coronavirus lockdowns in Asia also put some bearish pressure on the oil market. OPEC may revise its output-growth agreement depending on how the outbreak develops in Asia and whether the European Union decides to impose sanctions on Russian oil across the board.
2022-04-18
9243
Oil consumers finally saw some good news this week. Both OPEC and the International Energy Agency, the IEA, have lowered their demand forecasts , suggesting that prices finally have some meaningful downside potential. But OPEC is ready to change course. In its latest Oil Market Report, released this week, the IEA wrote: “ New draconian lockdown measures amid a surge in cases in Asia have led us to lower our global oil demand forecast for the second quarter and full year of 2022 . The IEA also noted that oil consumption in OECD member countries was lower than previously expected, leading the IEA to cut its oil demand forecast for this year by 260,000 bpd from last month's OMR to a total of 99.4 million bpd .
At the same time, the IEA noted that oil production was stable and significantly increased in the first quarter of this year, mainly by non-OPEC producers. Whenever production increases are led by non-OPEC producers, it is worth watching OPEC's response more closely than ever. Such a response has yet to come, but OPEC itself is lowering its demand forecast for this year, and it has done so by a much larger margin than the IEA .
OPEC said in its latest monthly oil market report that global oil demand will be 480,000 barrels a day lower than previously expected. The group said one of the reasons for the revisions was a slowdown in economic growth caused by the war in Ukraine, and another was due to pandemic-related lockdowns in Asia.
As for supply, the IEA seems very quiet. After the alarm about a potential shortfall of 3 million bpd in Russian oil exports due to Western sanctions, the IEA now says a coordinated release of a total of 240 million barrels of crude, 180 million of which was released by the United States, would offset the lack of Russian supplies .
It seems that the IEA considers the shortfall in Russia's oil supply to be temporary - just as the effects of releasing oil reserves will only last as long as the oil is released. OPEC could bring an unpleasant surprise to IEA members who are ready to tap their strategic reserves to normalize benchmark prices.
OPEC met with EU representatives earlier this month, only to tell them it would not step in to help if Russian oil exports were cut off entirely. OPEC Secretary-General Mohammed Barkindoshu said: “As a result of current and future sanctions or other voluntary actions, we could see Russia lose more than 7 million barrels per day of oil and other liquids exports. Given the current demand outlook, a production loss of this magnitude It's almost impossible to make up for it."
However, as demand forecasts are revised, OPEC may also decide to revise its production plans. With millions of Russian oil production disappearing from the (official) outlook and the very slim chance of a recovery in Iranian oil production, it is up to OPEC and the US to fill the gap, if they want to. With oil prices so high, U.S. oil producers, whose profit margins are high enough to spur more drilling on them, appear to be intrigued by the idea of boosting output. Meanwhile, OPEC’s output rose by just 67,000 bpd last month. That's because some OPEC members' oil production has fallen rather than increased, but Saudi Arabia is significantly below its output quota. Meanwhile, OPEC raised its forecast for U.S. oil production this year. History shows that OPEC is not happy when U.S. oil production grows, and it takes steps to offset that increase. Now, with production growth expected and demand growth expected to slow, it may only be a matter of time before OPEC reacts.
As for the nature of the potential reaction, it's not hard to guess. Now, OPEC is selling oil at prices it was a few years ago. Buyers have few other options amid Western sanctions on Russia and U.S. sanctions on Venezuela and Iran. It's a seller's market now.
However, news of a resurgence of the virus in Asia raised suspicions that the market was about to reverse. After all, Asia is the world's largest importer in absolute terms, and because of the lockdown, imports have fallen significantly. If Asia needs less oil, then there should be less supply.
Europe now appears to be becoming a bigger customer of OPEC oil, but only temporarily as the EU tries to replace Russian oil with oil from elsewhere. Europe is not a long-term growth market for OPEC oil and therefore, frankly, not an important market for OPEC. This is especially true for two OPEC producers with a lot of spare capacity.
So if pessimism on oil continues to intensify, depending on the spread of the virus in Asia and the EU's approach to Russian oil, we are likely to see OPEC revise its output growth with Russia and other OPEC+ partners by the end of the year agreement .
Brent Crude Oil Daily Chart
GMT+8 at 14:06 on April 18, Brent crude oil was continuously quoted at $112.15 per barrel
At the same time, the IEA noted that oil production was stable and significantly increased in the first quarter of this year, mainly by non-OPEC producers. Whenever production increases are led by non-OPEC producers, it is worth watching OPEC's response more closely than ever. Such a response has yet to come, but OPEC itself is lowering its demand forecast for this year, and it has done so by a much larger margin than the IEA .
OPEC said in its latest monthly oil market report that global oil demand will be 480,000 barrels a day lower than previously expected. The group said one of the reasons for the revisions was a slowdown in economic growth caused by the war in Ukraine, and another was due to pandemic-related lockdowns in Asia.
As for supply, the IEA seems very quiet. After the alarm about a potential shortfall of 3 million bpd in Russian oil exports due to Western sanctions, the IEA now says a coordinated release of a total of 240 million barrels of crude, 180 million of which was released by the United States, would offset the lack of Russian supplies .
It seems that the IEA considers the shortfall in Russia's oil supply to be temporary - just as the effects of releasing oil reserves will only last as long as the oil is released. OPEC could bring an unpleasant surprise to IEA members who are ready to tap their strategic reserves to normalize benchmark prices.
OPEC met with EU representatives earlier this month, only to tell them it would not step in to help if Russian oil exports were cut off entirely. OPEC Secretary-General Mohammed Barkindoshu said: “As a result of current and future sanctions or other voluntary actions, we could see Russia lose more than 7 million barrels per day of oil and other liquids exports. Given the current demand outlook, a production loss of this magnitude It's almost impossible to make up for it."
However, as demand forecasts are revised, OPEC may also decide to revise its production plans. With millions of Russian oil production disappearing from the (official) outlook and the very slim chance of a recovery in Iranian oil production, it is up to OPEC and the US to fill the gap, if they want to. With oil prices so high, U.S. oil producers, whose profit margins are high enough to spur more drilling on them, appear to be intrigued by the idea of boosting output. Meanwhile, OPEC’s output rose by just 67,000 bpd last month. That's because some OPEC members' oil production has fallen rather than increased, but Saudi Arabia is significantly below its output quota. Meanwhile, OPEC raised its forecast for U.S. oil production this year. History shows that OPEC is not happy when U.S. oil production grows, and it takes steps to offset that increase. Now, with production growth expected and demand growth expected to slow, it may only be a matter of time before OPEC reacts.
As for the nature of the potential reaction, it's not hard to guess. Now, OPEC is selling oil at prices it was a few years ago. Buyers have few other options amid Western sanctions on Russia and U.S. sanctions on Venezuela and Iran. It's a seller's market now.
However, news of a resurgence of the virus in Asia raised suspicions that the market was about to reverse. After all, Asia is the world's largest importer in absolute terms, and because of the lockdown, imports have fallen significantly. If Asia needs less oil, then there should be less supply.
Europe now appears to be becoming a bigger customer of OPEC oil, but only temporarily as the EU tries to replace Russian oil with oil from elsewhere. Europe is not a long-term growth market for OPEC oil and therefore, frankly, not an important market for OPEC. This is especially true for two OPEC producers with a lot of spare capacity.
So if pessimism on oil continues to intensify, depending on the spread of the virus in Asia and the EU's approach to Russian oil, we are likely to see OPEC revise its output growth with Russia and other OPEC+ partners by the end of the year agreement .
Brent Crude Oil Daily Chart
GMT+8 at 14:06 on April 18, Brent crude oil was continuously quoted at $112.15 per barrel
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