The Opec+ coalition expects oil markets to stay tight through to the end of this year before flipping into surplus next year. Its base case scenario sees global inventories rising significantly in 2022, ending the year more than 250mn bl above the 2015-19 five-year average.
The forecast — prepared by the group's Joint Technical Committee (JTC) at its meeting yesterday and seen by Argus — will be presented to the Joint Ministerial Monitoring Committee (JMMC) at 14:00 GMT today and to the full Opec+ ministerial conference at 15:00 GMT. Ministers will then decide whether to go ahead with a planned 400,000 b/d increase in the group's collective crude output quota in October, in line with the roadmap that was agreed in July to unwind outstanding cuts by the end of 2022.
Given the "large uncertainties related to the outlook on demand and non-Opec supply growth", the JTC considered two scenarios, both of which incorporate the decisions taken by the Opec+ group in July. The scenarios assume production from deal-exempt members Iran, Venezuela and Libya remains at July 2021 levels until the end of next year.
The JTC's base case — which adopts the global demand and non-Opec supply forecasts contained in Opec's latest Monthly Oil Market Report (MOMR) — sees OECD inventories sitting 74mn bl below the 2015-19 average at the end of the third quarter this year and 56mn bl below at the end of the fourth quarter. But in 2022, the base case scenario sees stocks progressively rising quarter-on-quarter to end the year at 264mn bl above the five-year average, which is more than double the size of the overhang at the end of last year.
The JTC's alternative scenario — which assumes weaker demand and stronger non-Opec supply — sees OECD stocks standing at 34mn bl below the five-year average at the end of the current quarter but 100mn bl above at the end of the fourth quarter. As with the base case, inventory levels will then progressively rise throughout 2022, finishing the year 679mn bl above the 2015-19 average.
Stay the course
Rising Covid infection rates in key demand centres such as the US and Asia-Pacific had raised questions as to whether a production increase in October would be necessary, particularly after oil prices lost almost $10/bl in the first three weeks of August. But prices have since recovered, and signs of a tightening market have persuaded some Opec+ delegates that there is no need to deviate from the current plan.
"According to the latest scenarios, there will still be a deficit of supply, and the inventories will remain below the five-year average… so far, I feel we will keep the strategy of increasing output by 400,000 b/d," said one delegate.
A second delegate agreed that the group will ratify the 400,000 b/d increase for October but cautioned that demand-side risks remain and that these may require the group to hold back from raising production in the months that follow.
Not all Opec+ members will necessarily be able to meet higher quotas, because of stalled or declining capacity. In Angola, a lack of investment and natural decline at mature fields drove crude output to the lowest in around 15 years in July, while in Nigeria, production growth is proving a challenge because of infrastructure issues.
