Comparative Analysis of Monthly Reports on the Oil Market

Oil Market Context

Key indicators show oil markets tightening on record high demand

Crude oil prices rallied in July and early August, approaching their highest level for the year. Brent's time spreads (prompt, 6-month and 12-month) have also become more bullish with steepening backwardation, indicating tightening supply for prompt delivery. This is a pivot from the end of June where the prompt and 6-month spreads were in contango. Similarly, diesel crack spreads have soared over the past month to the highest level in history, excluding 2022's volatility.

Robust demand has helped support prices. The IEA estimates global demand rose to an all-time record high of 103 mb/d in June and it expects another peak in August.

US final demand data for May, published on July 31st, came in ~970 kb/d above the estimate implied by US EIA weekly data. May demand was at an all-time seasonal high of 20.78 mb/d and was up 700 kb/d from year ago levels. US commercial crude inventories saw the largest week-on-week drop in history at the end of July. They fell by 17 mb and are now at their lowest level since 1985.

China's oil demand was at its second-highest level on record in May, according to data reported to JODI. It was up more than 2 mb/d year-on-year. Implied demand continued to be robust in June as crude imports soared 45% year-on-year. July crude imports softened but remained 17% above year ago levels.

Meanwhile, the IMF raised its outlook for global growth in its July update and it now anticipates 3.0% global GDP growth this year (vs. 2.8% expected in its April update).

Saudi Arabia and Russia extend voluntary production cuts through September

On August 3rd, Saudi Arabia announced an extension of its voluntary 1 mb/d production cut through September. The press release noted that the cuts could be extended or deepened in the future. This will be the third consecutive month where the Kingdom's crude production is expected to be at ~9 mb/d – a two-year low. Simultaneously, Russia announced it would be cutting 300 kb/d from crude exports in September, tapering down from the announced 500 kb/d cut for August.

US postpones SPR buyback

The US Department of Energy cancelled a solicitation for buying 6 mb of crude for the SPR for delivery in October and November due to rising crude prices. The US SPR has fallen to a 40-year low of 347 mb following a ~250 mb drawdown over the past 20-months.

2023 Forecast Highlights:

• Global demand:

  • IEA estimates global demand exceeded 103 mb/d in June, reaching a record high. The agency revised up its 2Q23 demand forecast by a significant 0.5 mb/d on higher-than-expected demand in North America, Europe, and China.
  • 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 ~0.8 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.

• Non-OPEC and OPEC NGL supply:

  • OPEC revised up 3Q23 non-OPEC supply by 0.5 mb/d primarily on higher Russian supply. EIA revised up 2H23 supply on a higher US outlook and now sees US crude averaging a record high of 12.76 mb/d this year.
  • IEA and EIA both now see non-OPEC supply growing this year by 1.9-2.0 mb/d. OPEC sees lower growth at 1.6 mb/d.
  • The largest divergence in supply forecasts is for Russian production. OPEC sees a 0.65 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 ~1.1-1.3 mb/d of supply this year.

• "Call on OPEC":

  • IEA and OPEC see the "call on OPEC" rising to 29.9-30.2 mb/d in the second half of the year. This implies a >2.5 mb/d global supply shortfall in 2H23 if OPEC production were to remain constant at July levels (27.31 mb/d). Notably, July production levels include a 1.0 mb/d voluntary cut from Saudi Arabia that may be extended or rescinded after September.

• July OPEC production:

  • OPEC secondary sources show OPEC production fell by 0.84 mb/d in July to 27.31 mb/d led by a 968 kb/d decrease from Saudi Arabia as it implemented a voluntary cut. IEA estimates show OPEC crude production fell by 0.95 mb/d to 27.86 mb/d. IEA estimates a higher production figure for Iran and UAE vs. OPEC secondary sources.

• OECD inventories:

  • IEA estimates OECD commercial inventories fell by 14.7 mb in June to 2,787 mb and stood 115.4 mb below the five-year average. OPEC estimates OECD commercial stocks rose by 4.2 mb in June to 2,828 mb and stood 74 mb below the latest five-year average and 119 mb below the 2015-2019 average.

2024 Forecast Highlights:

• Global demand:

  • IEA revised down its 2024 global demand growth forecast by 0.2 mb/d to 1.0 mb/d y/y. This is 1.2 mb/d lower than OPEC's forecast (2.2 mb/d) and 0.6 mb/d lower than EIA's forecast (1.6 mb/d).
  • IEA sees OECD demand declining by 0.4 mb/d next year while OPEC and EIA both forecast 0.2-0.3 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 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 104.3 mb/d by 4Q24 vs. EIA's 103.2 mb/d.

• Non-OPEC and OPEC NGL supply:

  • IEA, OPEC, and EIA all revised up non-OPEC supply forecasts for 2024.
  • EIA revised up non-OPEC supply by 0.4 mb/d on higher US, Brazil and Guyana forecasts; IEA revised its forecast up by 0.2 mb/d on higher Brazil, OPEC NGLs, China, and US; OPEC revised its forecast higher by 0.1 mb/d on Russia.
  • All three now see 1.3-1.5 mb/d of growth next year.
  • Notably, IEA and EIA both see US production growth slowing to 0.4-0.5 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":

  • The "call on OPEC" for next year ranges from 28.3 mb/d (EIA) to 30.1 mb/d (OPEC). IEA falls in the middle at 29.0 mb/d. All three implied figures are above July's actual OPEC production of 27.3 mb/d, implying 1.0-2.8 mb/d of global inventory draws if OPEC production remained constant. Notably, July's OPEC production figure includes a 1.0 mb/d voluntary cut from Saudi Arabia that is currently extended through September and be extended or rescinded.
  • OPEC's 2024 balance is ~1 mb/d tighter than IEA's primarily due to a higher demand forecast.

Key Charts