Those still searching for confirmation that the oil market is set for further tightening in the year-end period should look no further than the latest monthly reports from OPEC and the EIA. To begin with, both agencies lifted their near-term demand forecasts. OPEC raised its 4Q21 global oil demand estimate by 120,000 bpd to 99.82 mbpd. The EIA followed suit and now sees world oil demand averaging 99.98 mbpd in the final quarter of 2021, 210,000 bpd more than its previous forecast. The positive assumptions regarding oil demand heading into the year-end period are hardly surprising. After all, expectations of a seasonal pick-up in winter fuels together with the potential switch from natural gas to liquid fuels should support demand for the black stuff.
As for supply, OPEC and the EIA downgraded the near-term outlook for non-OPEC producers. OPEC said the supply from rival producers will be 320,000 bpd lower in the final quarter of this year than its previous assessment. With this revision, non-OPECliquids supply is now forecast to average 65.24 mbpd in 4Q21. In a similar vein, the EIA trimmed its non-OPEC supply estimate for the current quarter by 300,000 bpd. At the core of this deteriorating backdrop are the lingering production outages in the Gulf of Mexico following Hurricane Ida. Indeed, the EIA sees US crude output seen falling by more than previously expected in the final quarter of this year. US crude supply is forecast to average 11.13 mbpd in 4Q21, 150,000 bpd less than last month’s estimate. For the year, US crude output is seen declining by 260,000 bpd to average 11.02 mbpd.
The constrained gains in non-OPEC supply coupled with the firmer demand backdrop over the coming quarter make for a tightening oil balance. Underscoring this fact is the increasing demand for the oil cartel’s crude. OPEC now expects the call on its crude will average 29.36 mbpd in 4Q21, 440,000 bpd more than a previous estimate. The EIA lifted its equivalent forecast by 510,000 bpd to 28.79 mbpd. The upshot is that global oil inventories will fall at a faster rate than previously expected in 4Q21. The stage is therefore set for OECD commercial oil stocks to drain for a sixth consecutive quarter. This, in turn, will keep oil prices close to multi-year highs over the winter months.
As things stand, OPEC and EIA are singing from the same bullish hymn sheet with regards to the near-term oil balance. Yet the same cannot be said for next year. Key differences are apparent when it comes to the oil balance in 2022. For starters, OPEC kept its world oil demand growth unchanged compared with last month’s estimate at 4.15 mbpd. Total global demand is foreseen reaching 100.8 mbpd for the year. In contrast, the EIA cut its 2022 world oil demand growth forecast by 150,000 bpd to 3.48 mbpd. What’s more, the EIA is projecting a faster rebound in non-OPEC supply. It expects supply from producers outside of the oil cartel will expand by 3.28 mbpd next year whereas OPEC puts the same figure at 3,02 mbpd. The key takeaway is that a price-supportive consensus has emerged for the near-term oil balance while the outlook for next year is plagued with uncertainty. Perhaps the IEA can shed some light on the matter when it releases its updated forecasts later this morning.
The Putin Effect
A choppy day in the oil markets started on the back foot as data showed Chinese crude imports dropped in September. The world’s top-oil importing nation saw its intake of foreign crude drop to 9.99 mbpd last month from 10.49 mbpd in August. Then came the real hammer blow for oil bulls. The Russian President stressed that Gazprom, Russia’s gas giant, was supplying gas to Europe at maximum levels under existing contracts, and that crucially it was ready to provide more if requested. Bent and WTI swiftly slumped by around a dollar on fears that Moscow might be willing to go further to help ease the price squeeze in Europe. Yet the Putin Effect ultimately provide short-lived. Doubts soon emerged over whether Russia will play ball and supply additional gas to Europe on the spot market. By the close, Brent and WTI had recouped most of their losses and finished the session around 20cts/bbl in the red.
This morning, the energy complex is making amends as attention shifts to US oil inventory data. Pricing pressures have been given a supportive kick up the backside amid expectations for a hefty draw in fuel stocks. The API reported that gasoline and distillates fuel inventories declined last week by 4.6 million and 2.7 million bbls, respectively. Meanwhile, US crude stocks rose by 5.2 million bbls although this included a 2.3 million bbls drop at the Cushing hub.