OPEC's Monthly Report - Dec 13

[dan_s]

From Bloomberg:

OPEC continues to forecast a significant shortfall in global oil supplies next quarter, an outlook at odds with the deeper output cutbacks it unveiled last month. Even before the group implements the extra curbs, estimates from its Vienna-based secretariat indicate a hefty deficit of about 1.8 million barrels a day in the first quarter of 2024.

OPEC and its allies have pledged to curtail supply by a further 900,000 barrels a day from January, widening the projected shortfall.

That stands in contrast to what the alliance’s dominant member said last week. The cuts announced on Nov. 30 were intended to overcome the “the usual inventory build that usually happens in the first quarter,” according to Saudi Energy Minister Prince Abdulaziz bin Salman.

It also shows little connection to Brent crude prices, which have slumped roughly 14% since the coalition met to a five-month low of less than $73 a barrel. Oil traders have shown deep skepticism about the latest pledged cutbacks from the 23-nation OPEC+ alliance, doubting they will be sufficiently implemented to tame a looming surplus. < MY TAKE is that the traders have read too much into why OPEC+ delayed their November meeting for a few days. It was done just to get Nigeria and Angola on board with the updated production quotas. Both African nations are having trouble producing up to their quotas for years.

Projections from the Organization of Petroleum Exporting Countries’ research department, published in a report on Wednesday, point to an acutely tight market. It even raised forecasts for the crude needed from OPEC this quarter by 190,000 barrels a day, amid a weaker outlook for production from its rivals.

In theory, that puts world markets on track for a record shortfall of about 3.3 million barrels a day in the last three months of 2023. Such estimates are increasingly hard to reconcile with real-world data.

Besides the slump in crude prices, futures contracts for near-term supplies versus later deliveries have shifted to a discount known as contango, which typically indicates a market that’s oversupplied. And despite OPEC’s estimate of weaker production from rivals this quarter, US oil output has marched to all-time highs above 13 million barrels a day — in part because OPEC’s support for prices has reinvigorated the nation’s shale oil industry.

OPEC projects that global oil demand will climb by 2.2 million barrels a day next year, roughly 2% growth, to average 104.36 million barrels a day. That’s more than double the expansion anticipated by the International Energy Agency, which advises major economies and will release its own monthly assessment on Thursday. < As I have posted here many times, IEA is now a "political" group that has a long history of under-estimating oil demand.

The Paris-based IEA predicts that oil demand is on track to peak before the end of the decade, a goal given tentative support this week by the pledge at the COP28 climate talks in Dubai to transition away from fossil fuels.

Besides the rationale outlined by the Saudi minister, OPEC itself gave little explanation for its latest production cuts in its Nov. 30 meeting’s closing statement, and neglected to hold a press conference to clarify its thinking. The 900,000 barrels a day of extra cuts agreed by OPEC+ last month apply from January to March. The Saudis and others have said they could be prolonged, though the alliance isn’t scheduled to formally meet again until June and hasn’t specified a date for its next interim review.