Global oil markets to tip into surplus this quarter

Oil experts are saying the Organization of Petroleum Exporting Countries (OPEC) is preparing for higher outputs of oil given unprecedented pressure by western nations.

Already, OPEC+ has set the stage with its tiny 100,000 bpd production target hike with some fearing this small hike may end up being not only the smallest on record, but also the shortest. OPEC+ “surprised” traders at the August 3 meeting with plans to add just 100,000 barrels a day in September – the smallest increase in history – despite calls from US President Joe Biden to open the taps during a visit to group leader Saudi Arabia last month.

The alliance explained the move by saying it had to deploy “severely limited” spare production capacity with “great caution. OPEC’s Vienna-based research department reduced forecasts for global oil demand this quarter by 720,000 barrels a day, and boosted projections for non-OPEC supply by 520,000 a day.

FORECAST CUT FOR CRUDE PRODUCTION IN Q3

It expects consumption to average 99.93 million barrels a day in the three-month period. In its latest monthly report, OPEC revealed that it expects global oil markets to tip into surplus this quarter as it downgraded the outlook for demand and bolstered estimates for rival supplies.

OPEC cut forecasts for the amount of crude it will need to pump in the third quarter by 1.24 million barrels a day to 28.27 million. According to Bloomberg, this is about 570,000 barrels a day less than OPEC’s 13 members pumped in July.

The surprising revision, which comes at a time of unprecedented pressure by western nations in general and the US in particular on the non-Russian countries in OPEC+, conspicuously diverges from that of the International Energy Agency (IEA), which boosted its demand forecasts on Thursday (April 11).

This has come about as soaring natural gas prices compel companies and refiners to switch to using oil, in effect confirming Europe’s aggressive gas-oil switching amid US oil exports to Europe likely set the lows for US gasoline prices.

‘OVERWHELMINGLY CONCENTRATED’

Oilprice.com reports that specifically, in its own monthly report, the Paris-based IEA forecast that world oil consumption will increase by 2.1 million barrels a day this year, or about two per cent, up 380,000 a day from the previous forecast. The extra demand that prompted the revision is “overwhelmingly concentrated” in the Middle East and Europe.

At the basis of the IEA’s upward demand revision is a surge in gas-to-oil switching. Natural gas prices have surged this year as Russia restricts gas flows to Europe, a move that is widely seen as retaliation for sanctions imposed over its invasion of Ukraine.

The increase has prompted many industrial consumers, including refiners and power plants, to switch from gas to oil. Scorching temperatures have also spurred demand for air conditioning, particularly in the Middle East, where a significant amount of oil is burned during summer to generate electricity.