Oil prices trimmed on OPEC bearish language
Oil prices are a little trimmed today as a result of bearish language by OPEC’s research arm on implied stock builds already materializing as early as December 2021 due to the SPR releases.
Further downward pressure is added by the EU announcement that there will likely be an introduction of a 9-month limit on Covid vaccine validity for travel, which could pinch jet fuel demand.
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OPEC’s Economic Commission Board, which runs independently of the ministerial policy, said that it sees a 400,000 bpd surplus in the oil market for December 2021 if the SPR release of more goes ahead.
The prospect of a surplus of hundreds of thousands of barrels from December is very real as a result of the SPR release, with our own data pointing to a build of 300,000 bpd in December 2021.
Production from OPEC+ countries, which we forecast is currently ticking in around 39.8 million bpd for November 2021, may not need a superficial supply policy to lower output, as many countries are facing structural challenges that prevent them from maxing out their production quotas.
Overall underproduction by the group, therefore, may continue to progress organically, and it seems to not warrant an official top-down policy.
Between now and September 2022, the officially stated end date of tapering, we expect OPEC+ to bring back 2.7 million bpd in crude supply.
OPEC+ has been enjoying the wave of $80 oil prices following a tumultuous revenue year in 2020, but at some point the economic concerns that the US and China have over inflation will catch up even with the producing countries.
Russia, for example, is experiencing inflation that is more than double the Central Bank’s 4% target rate.
While the market is currently laser focused on next week’s OPEC+ meeting, the other major marginal supply player, the US, is sending out bullish signals on the supply side. Given the Thanksgiving holiday, the regular weekly rig data came in yesterday, and it came in strong. Oil rigs in the US rose to 418, the highest since April 2020.
The US shale industry, which has been a key new source of driving supply growth over the last decade, is poised to see a steady increase in output as oil prices remain elevated above the $60 per barrel threshold.
There is an overall expectation of increased demand, which also prompts operators to steadily loosen spending budgets and ramp up activity. If these conditions are maintained, and all else stays equal, a US oil production growth of 1 million bpd in 2022 year-on-year cannot be ruled out.
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