Opec sticks to its guns on oil demand growth

Opec kept its global oil demand forecast for 2023 broadly unchanged for a fourth consecutive month, in its latest Monthly Oil Market Report (MOMR) published today.

The group nudged up its oil demand growth estimate by 20,000 b/d to 2.35mn b/d for the year. The uptick was largely driven by a 40,000 b/d upwards revision to China's demand growth, which was partially offset by a 30,000 b/d downwards revision in Europe. The group sees total oil demand for 2023 at 101.91mn b/d.

Most of this year's demand growth will come in the second half, when Opec forecasts a year on year rise of 2.4mn b/d.

This appears to be at odds with Saudi Arabia's 4 June decision to implement a 1mn b/d unilateral crude production cut for July. This came on top of the wider Opec+ alliances decision to extend its production cuts — including the April 'voluntary' cuts — until the end of 2024.

Front-month Ice Brent crude was trading at around $73/bl as of midday London time, around $20/bl lower than when Opec+ announced a 2mn b/d cut to its production ceiling in October 2022. This was topped off with the 1.16mn b/d 'voluntary' cut announcement in April, in addition to Russia's pledge to cut output by 500,000 b/d.

Saudi Arabia's energy minister Prince Abdulaziz bin Salman in recent days appeared to justify his country's 1mn b/d cut decision by pointing to an apparent discrepancy between physical supply and demand fundamentals and the futures market.

"I think the physical market is telling us something and I think the future market is telling us something else," he said, adding that Opec+ was working against "uncertainties and sentiments."

"It's a matter of being in a state of readiness," he said.

Opec left its projection for non-Opec liquids supply growth unchanged at 1.43mn b/d for 2023, with the biggest additions seen coming from the US, Brazil and Norway. Output from Russia, whose oil exports have been hit with sanctions, is seen declining by 750,000 b/d, unchanged from last month's MOMR forecast.

Opec's call on its members' crude production for this year was revised up by 40,000 b/d to 29.30mn b/d. This is well above the group's 28.07mn b/d production in May, as calculated by the group's secondary sources, which include Argus. This gap is only set to widen as Saudi Arabia begins its 1mn b/d cut from July.

By Aydin Calik