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Cartel sees oil market’s full restoration in 2022 as OPEC+ retains quota

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(FILES) In this file photo a flare stack is pictured next to pump jacks and other oil and gas infrastructure on April 24, 2020 near Odessa, Texas. – A boost in production agreed on by the world’s leading oil producers is “simply not enough” as the global recovery from the coronavirus pandemic sputters, US national security advisor Jake Sullivan said on August 11, 2021. The increases agreed on by OPEC+ (the Organization of the Petroleum Exporting Countries and allies) “will not fully offset previous production cuts that OPEC+ imposed during the pandemic until well into 2022,” he said in a statement released by the White House. (Photo by Paul Ratje / AFP)

The Organisation of Petroleum Exporting Countries (OPEC) and its allies expect oil markets to stay tight through to the end of this year before flipping into surplus next year.

OPEC+ also reportedly revised its 2022 oil demand growth forecast by almost one million bpd to 4.2 million bpd.

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The coalition has reserved the option to fine-tune its scheduled output increases depending on market conditions. And rising COVID-19 infection rates in key demand centres such as the US and Asia-Pacific had raised questions as to whether the quota rise would be necessary for October, particularly after oil prices lost almost $10/bl in the first three weeks of August.

The projection, according to the Joint Technical Committee (JTC) and presented to the Joint Ministerial Monitoring Committee (JMMC), showed that production from deal-exempt members Iran, Venezuela, and Libya remains at July 2021 levels until the end of next year.

Ministers, yesterday, decided to go ahead with a planned 400,000 barrels a day 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.

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OPEC Secretary-General, Mohammad Barkindo, yesterday, stated that world oil demand will grow by six million barrels a day this year.

“We have revised our figure for non-OPEC liquids production for 2021, which is now forecast to grow by 1.1 mb/d. For 2022, non-OPEC supply our forecast for growth is 2.9 mb/d. We will closely monitor the impact of Hurricane Ida on production and downstream operations in the Gulf of Mexico.

“The JTC has stressed that the nature of market dynamics and the current significant uncertainties necessitate that participating countries demonstrate prudence, particularly in remaining agile and avoiding risk when looking at the potential for global oil market imbalance during 2022.

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“Uncertainties remain, particularly with regard to the Delta variant, rates of vaccine uptake, the possible need for booster vaccines, and monetary policy. However, the platform we have established allows us to continue to monitor such developments and take action as appropriate,” he added.

Russian Deputy Prime Minister Alexander Novak said yesterday that he expects the global oil market to fully recover next year.

Novak noted that OPEC and its allies, led by Russia, managed to remove the surplus from the global oil market with their output cuts and that they should now focus on keeping the market balanced and synchronising output as the recovery continues.

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The Russian official also stressed that his country is strictly complying with the OPEC+ deal.

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.

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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.

In July, the cartel agreed to phase out 5.8 million barrels per day of oil production cuts by September 2022 as prices hit a two-year high.

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The development will see Nigeria’s production quota rising to 1.829 million barrels per day; 400,000 barrels above what it does presently.

Nigeria’s production volume is below the 2021 budget estimate for the year, thus affecting the capacity to earn more, alongside subsidy challenges.

With improvement in production volumes, there are expectations of improved earnings for the country, especially at a time it is overwhelmed by subsidy payments.

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