World Set for Oil Inventory Surplus Even If OPEC+ Holds on to Output Cuts: IEA

U.S. shale oil production and exports have contributed to global oversupply in recent years, which, in turn, has amplified pressure on OPEC to implement production cuts to keep crude oil prices from collapsing to untenable levels. That’s led to an agreement among most OPEC countries and nearly a dozen other non-member producing countries — together known as OPEC-Plus — to limit production, an accord that’s remained in place since January 2017. However, oversupply conditions now are also prompting U.S. oil and gas producers to pull back on their planned capital expenditures for 2020, suggesting a slowdown in U.S. production growth later this year and into 2021. Recent global oil supply and demand forecasts by the International Energy Agency (IEA), the U.S. Energy Information Administration (EIA) and OPEC itself suggest that such a slowdown, if it materializes, could present a window of opportunity for OPEC-Plus to relax its quotas and potentially reclaim some of its lost oil market share, at least for a time. Today, we examine what the recent changes in monthly data from IEA, EIA and OPEC indicate about potential shifts in the OPEC versus non-OPEC oil supply and demand balance and what that could mean for OPEC’s role in meeting global demand.

Much like the world at large, the crude oil market has been healing from the ravages of COVID-19. Overall, market conditions are far better than they were in April 2020, when global oil consumption, crushed by pandemic-related lockdowns, slumped to 80.4 MMb/d, a 17% decline from the start of last year and a 20% drop from April 2019. Demand has been rebounding in fits and starts for a full year now — recovering from downturns is what markets do. But this recovery has gotten a big assist: 10 members of the Organization of the Petroleum Exporting Countries (OPEC), acting in concert with 10 non-members, have restrained crude oil production in a program unprecedented in scale and duration. Now, oil prices are high enough to revive activity by some producers outside the so-called OPEC+ group. For at least the rest of this year, in fact, the market looks like a steel-cage match between crude supply subject to coordinated management and supply governed only by raw market signals. Today, we look at oil-market projections from three important agencies and estimate demand for oil not supplied by the OPEC+ exporters.