Opec’s ever-deteriorating view of the oil market

Every time the Organization of Petroleum Exporting Countries assesses the short-term outlook for the oil market, it gets just a little bit bleaker. The group’s own numbers are piling pressure on its members and their allies in the so-called Opec+ coalition to delay or water down output cuts originally planned for January.

The world now needs anywhere between about 600,000 and 2.2mn barrels a day less crude from Opec countries through the end of 2021 to balance supply and demand than was thought necessary three months ago, according to the latest monthly reports from Opec, the International Energy Agency and the US Energy Information Administration.

Of the three, Opec is the most pessimistic.

Since that initial 2021 forecast in July, Opec has cut its expectation of the world’s need for its members’ crude each month, and for almost every quarter. The only exception is a jump in the April-to-June period, after the group increased its assessment of global oil demand in that quarter by 860,000 barrels a day from last month’s report, having cut it by 700,000 barrels a day between the August and September reports. Opec sees demand for its crude ranging from 27mn to 29mn barrels a day next year. After making the biggest output cuts in their history back in May, the Opec countries aren’t pumping anything like that much. Their aim is to ensure that excess stockpiles that were amassed during the depth of the pandemic are drawn back down. They are supposed to meet in late November and December with a view to ratifying a pact to add barrels to the market from January.

The latest outlooks add weight to the argument that the Opec+ coalition will need to delay or water down any such easing of its output cuts. A deteriorating demand outlook – Opec has cut its 2021 forecast by 880,000 barrels a day since July – has combined with expectations of more supply from non-Opec rivals: the group’s assessment of non-Opec supply next year has risen by 1mn barrels a day since July.

That increase is driven by an expectation of higher US oil production, which Opec now sees averaging 18.06mn barrels a day next year, including condensates and natural gas liquids, compared with 17.27mn barrels forecast in July. In contrast, the EIA has raised its forecast of US production by a much more modest 240,000 barrels a day over the same period.

In practice, Opec+ output restrictions mean that the dwindling call on Opec crude will delay the return of oil stockpiles to more normal levels. Assuming that the Opec countries stick to the output deal agreed in April, and that Libya’s production recovers to average 500,000 barrels a day next year, global oil stockpiles at the end of 2021 will still be 420mn barrels above where they were at the end of 2019. No wonder the group is starting to debate January’s planned easing of the cuts.

Since the initial 2021 forecast in July, Opec has cut its expectation of the world’s need for its members’ crude each month, and for almost every quarter. The only exception is a jump in the April-to-June period, after the group increased its assessment of global oil demand in that quarter by 860,000 barrels a day from last month’s report, having cut it by 700,000 barrels a day between the August and September reports