OPEC+ sees a tighter market in 2022, threatening oil demand growth

OPEC+ sees a tighter market in 2022, threatening oil demand growth

The logo of the Organization of the Petroleum Exporting Countries (OPEC) outside its headquarters before an OPEC and non-OPEC meeting, Austria, December 6, 2019. REUTERS/Leonard Voyager

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LONDON/MOSCOW (Reuters) – OPEC+ sources said that the oil market will achieve a small surplus of only 0.4 million barrels per day in 2022, much less than previously expected, due to the lack of production in its members.

The report comes days before the OPEC + policy meeting on the fifth of September and a week after OPEC leader Saudi Arabia announced that the organization may reduce oil production. Read more

The Joint Technical Committee, which met on Wednesday, advises the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, known as the OPEC+ group of oil-producing countries, on market fundamentals.

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Ahead of its meeting on Wednesday, the JTC released a report, seen by Reuters, indicating that the oil market would be surplus at 0.9 million barrels per day in a best-case scenario.

After the meeting, the figure was set at 0.4 million barrels per day, two OPEC+ sources said as the group decided to include the balances of large numbers of underproduction by its members.

Saudi Energy Minister Prince Abdulaziz bin Salman said last week that OPEC+ was ready to cut production amid volatility in the oil futures market, driven by poor liquidity and detachment from physical markets. Read more

Five sources told Reuters that discussions had not yet begun on the post-September production policy and whether the producer group would cut production.

Oil prices have been very volatile in recent weeks. While Prince Abdulaziz’s comments helped push prices to a one-month high above $105 a barrel on Monday, Brent crude on Wednesday traded $10 below those levels, amid expectations of lower demand.

At its last meeting, OPEC + agreed to increase production targets by 100,000 barrels per day for the month of September, after canceling record cuts of about 10 million barrels per day agreed upon in 2020 to help counter the impact of the pandemic.

The JTC report said that oil demand – which is expected to grow by 3.1 million barrels per day this year – is facing significant uncertainties especially from rising inflation and tightening monetary policy affecting consumers’ budgets.

“Rising energy prices pose another risk in the future,” the report said. “The latter may lead to a larger decline in consumption than is currently expected, especially towards the end of the year.”

A monthly survey conducted by OPEC on Wednesday showed that production rose in August to the highest level since the early days of the epidemic in 2020, but it is still less than the target level in August by 1.4 million barrels per day, compared to 1.3 million barrels per day in July.

Many OPEC and OPEC+ producers lack the capacity to increase production due to insufficient investment in oil fields, as well as various Western sanctions in the case of Iran, Venezuela and Russia.

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Additional reporting by Maha El Dahan in Dubai, Rowena Edwards and Alex Lawler in London; Editing by Bernadette Baum and Matthew Lewis

Our Standards: Thomson Reuters Trust Principles.

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