Comparative Analysis of Monthly Reports on the Oil Market

Oil Market Context

Saudi Arabia and Russia extend/deepen production cuts

Saudi Arabia announced on July 3rd that it was extending its voluntary 1 mb/d production cut from July into August. The Kingdom's crude production is expected to fall to ~9 mb/d – a two-year low. Simultaneously, Russia announced it would be cutting an additional 500 kb/d from crude exports in August and Algeria announced a 20 kb/d cut for the same month.

Mixed-messages on the global economy and oil demand

Negative economic sentiment continues to weigh on markets, but oil demand in the world's largest consuming countries has surprised to the upside.

In the US, the world's largest oil consumer, both economic data and oil demand continue to be revised up. Estimates of 1Q23 GDP was revised up to 2.0% in June after May estimates pegged it at just 1.3%. Additionally, latest final oil demand data, for April 2023, came in nearly 500 kb/d above estimates.

Official PMI data showed China's manufacturing sector contracted for a third consecutive month in June. However, the country's oil demand has remained robust, soaring to a record high in April and falling slightly in May to the 2nd highest level on record.

Furthermore, economic and oil demand growth in other non-OECD countries, including India and Brazil, continue to exceed and defy economists' expectations of an impending slowdown.

In contrast, demand remains subdued across OECD Europe where the HCOB Eurozone Manufacturing PMI has indicated a contraction for 12-consecutive months. The region's oil demand in 1H23 averaged ~150 kb/d below year-ago levels.

US begins SPR buyback

The US Department of Energy has announced plans to buyback at least 12 mb of oil for the Strategic Petroleum Reserve (SPR) this year, including 6 mb already contracted for delivery in August and September. On July 7th, the DOE issued a solicitation for an additional 6 mb for delivery in October and November and noted that they will pursue additional repurchase opportunities as "market conditions allow." The US SPR has fallen to a 40-year low of 347 mb following a ~250 mb drawdown over the past 18-months.

2023 Forecast Highlights:

• Global demand:

  • IEA and OPEC remain fairly aligned on global demand growth (~2.2-2.4 mb/d), while EIA sees lower growth (1.8 mb/d). IEA continues to see ~0.7 mb/d higher Chinese demand growth this year vs. EIA and OPEC. Meanwhile, OPEC sees more robust demand in Russia, Africa, the Middle East and other non-OECD countries compared to IEA and EIA.
  • IEA revised down its 2023 demand growth forecast by 0.2 mb/d this month primarily on weaker OECD Europe and Middle East demand. Meanwhile, EIA revised up its demand growth by 0.2 mb/d on stronger forecasts for Europe, Brazil, and non-OECD Asia. OPEC revised up its forecast by 0.1 mb/d on stronger-than-expected 2Q23 demand in China and the US.

• Non-OPEC and OPEC NGL supply:

  • IEA and EIA both now see non-OPEC and OPEC NGL supply growing this year by 1.9 mb/d. OPEC sees lower growth at 1.5 mb/d.
  • IEA revised up its non-OPEC supply growth forecast by 0.1 mb/d led by higher Russia and US projections. Meanwhile, EIA revised down its non-OPEC growth forecast by 0.2 mb/d on weaker projections for Norway and South America. OPEC's annual forecast remained unchanged this month as upward revisions to 1H23 offset downward revisions to 2H23.
  • The largest divergence in supply forecasts is for Russian production. OPEC sees a 0.75 mb/d decline in Russian output this year vs. IEA's and EIA's forecast of a 0.2-0.3 mb/d annual decline.
  • All three forecasters expect the US to be the largest driver of non-OPEC supply growth, adding ~1 mb/d of new supply this year.

• "Call on OPEC":

  • IEA and OPEC see the "call on OPEC" rising to 30.1-30.4 mb/d in the second half of the year. This implies a ~2 mb/d global supply shortfall in 2H23 if OPEC production were to remain constant at June levels (28.19 mb/d).

• June OPEC production:

  • OPEC secondary sources show OPEC production rose by 0.09 mb/d in June to 28.19 mb/d led by a 56 kb/d increase from Iran and a 54 kb/d increase in Iraq. IEA estimates show OPEC crude production remained flat month-on-month in June at 28.7 mb/d. IEA estimates a higher production figure for Iran and UAE vs. OPEC secondary sources.

• OECD inventories:

  • IEA estimates OECD commercial inventories rose by 5.4 mb in May to 2,824 mb and stood 92.2 mb below the five-year average. OPEC estimates OECD commercial stocks rose by 20.2 mb in May to 2,815 mb and stood 101 mb below the latest five-year average and 140 mb below the 2015-2019 average.

2024 Forecast Highlights:

OPEC issued its inaugural 2024 outlook this month.

• Global demand:

  • OPEC's inaugural 2024 forecast shows demand growth slowing to 2.2 mb/d from 2.4 mb/d this year. This is double IEA's forecast for of 1.1 mb/d and 0.6 mb/d above EIA's forecast of 1.6 mb/d.
  • IEA sees OECD demand declining by 0.3 mb/d next year while OPEC and EIA both forecast 0.3 mb/d growth. Additionally, OPEC sees 0.2 mb/d stronger demand growth in the Middle East next year compared to both IEA and EIA.
  • Notably, OPEC shows quarterly demand reaching 105.3 mb/d by 4Q24 – which is ~4 mb/d higher than all three agencies' estimates for the most recent quarter, 2Q23.
  • Despite having a lower y/y demand growth forecast, IEA sees higher demand levels than EIA for most of 2024 due to a higher 2023 baseline forecast. IEA sees quarterly demand rising to 104.5 mb/d by 4Q24 vs. EIA's 103.2 mb/d.

• Non-OPEC and OPEC NGL supply:

  • Both IEA and EIA see non-OPEC and OPEC NGL supply growing by 1.0-1.2 mb/d in 2024. OPEC sees slightly faster growth at 1.5 mb/d primarily due to a higher US growth forecast.
  • Notably, IEA and EIA both see US production growth slowing to 0.4 mb/d next year from >1.0 mb/d this year. Despite a significant slowdown, the US is still the strongest driver of non-OPEC supply growth in 2024.

• "Call on OPEC":

  • IEA's balance implies OPEC would need to produce an average 29.2 mb/d in 2024 to balance the market. This implies a ~1 mb/d supply shortfall if OPEC production were to remain at June 2023 levels (28.2 mb/d).
  • EIA's balance implies OPEC would need to produce an average of 28.7 mb/d in 2024 to balance the market, implying a 0.5 mb/d global supply shortfall if OPEC production remained at June 2023 levels.
  • OPEC's balance implies a 30.2 mb/d "Call on OPEC", implying a 2.0 mb/d global supply shortfall if OPEC production remains constant at June 2023 levels.
  • OPEC's 2024 balance is ~1 mb/d tighter than IEA's primarily due to a higher demand forecast.

Key Charts