The Commodities Feed: Growing Oil Deficit and OPEC's Influence on Prices
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The Commodities Feed: Growing oil deficit
The oil market rallied yesterday on the back of a constructive OPEC report. Today, all attention will be on the IEA’s monthly oil report and whether the agency shares the same view as OPEC.
Energy - OPEC sees large deficit
The oil market continued its move higher yesterday. ICE Brent rallied by almost 1.6% taking it above US$92/bbl and trading to its highest level since November last year. The catalyst for the move was a bullish monthly report from OPEC. The group’s numbers suggest that the oil market could see a deficit of more than 3MMbbls/d over the fourth quarter of this year. These numbers will cause some to question OPEC’s claims that their main objective is to keep the market balanced as their own numbers clearly do not show this. However, the actual balance could end up looking very different, given that there is still plenty of uncertainty over demand. In addition, we have seen Iranian and Venezuelan output edging higher this year and there is the potential for at least Iranian supply to continue rising despite US sanctions.
Higher prices are likely to lead to increased political pressure, particularly given that there are elections in a number of countries next year, including key oil consumers, the US and India. It may be difficult for the US government to allow further releases from its strategic petroleum reserves (SPR), but we are likely to see the government taking a pause in refilling the SPR after the large releases seen last year. In addition to this, the US is likely to be less strict in enforcing sanctions against Iran. Already, in recent months this appears to be the case.
The EIA released its latest Short-Term Energy Outlook yesterday in which they slightly revised higher their US crude oil production estimates. The EIA expects US output to grow by around 880Mbbls/d YoY to a record 12.78MMbbls/d this year, while for 2024, supply is expected to grow by a more modest 370Mbbls/d to 13.16MMbbls/d. However, given the slowdown that we have seen in drilling activity for much of this year, it might be a challenge to hit these estimates.
Overnight, the API released US inventory numbers, which were more bearish. US crude oil inventories increased by 1.17MMbbls over the week, whilst gasoline and distillate stocks increased by 4.2MMbbls and 2.59MMbbls respectively.
Today, the IEA will release its latest monthly oil market report. The market will be eager to see their latest forecasts, particularly after OPEC's numbers. This release will be followed by the EIA’s usual US inventory numbers.
