Biden's "hard-won", post Saudi fist-bump OPEC output boost of 100K barrels may end up being not only the smallest on record, but also the shortest.
In its latest monthly report, OPEC revealed that it expects global oil markets to tip into surplus this quarter as it downgraded the outlook for demand and bolstered estimates for rival supplies. The Organization of Petroleum Exporting Countries cut forecasts for the amount of crude it will need to pump in the third quarter by 1.24 million barrels a day to 28.27 million - according to Bloomberg, that’s about 570,000 barrels a day less than OPEC’s 13 members pumped in July.
The surprising revision, which comes at a time of unprecedented pressure by western nations in general and the US in particular on the non-Russian countries in OPEC+, conspicuously diverges from that of the International Energy Agency, which boosted its demand forecasts on Thursday as soaring natural gas prices compel companies and refiners to switch to using oil, in effect confirming what we said two days ago when we noted that Europe's aggressive gas-oil switching amid US oil exports to Europe likely set the lows for US gasoline prices.
FIRST EVER CARGO OF U.S. MARS CRUDE OIL DISCHARGED IN GERMANY'S ROSTOCK PORT -TRACKING, SOURCES
European gas-oil switching just put the lows for US gasoline prices— zerohedge (@zerohedge) August 8, 2022
Specifically, in its own monthly report, the Paris-based IEA forecast that world oil consumption will increase by 2.1 million barrels a day this year, or about 2%, up 380,000 a day from the previous forecast. The extra demand that prompted the revision is “overwhelmingly concentrated” in the Middle East and Europe.
At the basis of the IEA's upward demand revision is a surge in gas-to-oil switching. Bloomberg explains:
Natural gas prices have surged this year as Russia restricts gas flows to Europe, a move that is widely seen as retaliation for sanctions imposed over its invasion of Ukraine. The increase has prompted many industrial consumers, including refiners and power plants, to switch from gas to oil. Scorching temperatures have also spurred demand for air conditioning, particularly in the Middle East, where a significant amount of oil is burned during summer to generate electricity.
Always a political organization, however, OPEC’s outlook is likely meant to give further "explanation" for the minimal production increase it agreed on with its allies last week, if not set the stage for future production cuts?
OPEC+ "surprised" traders at the Aug. 3 meeting with plans to add just 100,000 barrels a day in September - the smallest increase in history - despite calls from US President Joe Biden to open the taps during a visit to group leader Saudi Arabia last month. The alliance explained the move by saying it had to deploy “severely limited” spare production capacity with “great caution.”
OPEC’s Vienna-based research department reduced forecasts for global oil demand this quarter by 720,000 barrels a day, and boosted projections for non-OPEC supply by 520,000 a day. It expects consumption to average 99.93 million barrels a day in the three-month period.
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