Global crude oil demand is mixed, will OPEC+ further cut production?

This year, the weak economy in Europe and the United States has become a drag on global crude oil demand, and international oil prices have also continued to fall. On May 11, OPEC …

This year, the weak economy in Europe and the United States has become a drag on global crude oil demand, and international oil prices have also continued to fall.

On May 11, OPEC released its monthly crude oil market report, predicting that global oil demand in 2023 will increase by 2.33 million barrels per day compared with 2022, an increase of 2.3%, slightly higher than the 2.32 million barrels per day predicted last month. Due to China’s strong economic recovery, OPEC raised China’s average oil demand growth in 2023 from 760,000 barrels/day last month to 800,000 barrels/day. However, OPEC also reminded that economic difficulties in other regions may drag down global oil demand. .

It should be noted that OPEC+ unexpectedly cut production in early April, which briefly reversed the downward trend of oil prices. At that time, OPEC+, led by Saudi Arabia, unexpectedly announced a collective production cut, with a total production cut of more than 1.6 million barrels per day, which would take effect from May and last until the end of 2023. Brent crude oil futures once rose to above US$86 per barrel.

However, the good times did not last long. Under the shadow of multiple negative factors such as economic concerns, oil prices weakened again. On May 11, international oil prices ended lower for the second consecutive trading day. The price of light crude oil futures for June delivery on the New York Mercantile Exchange fell 2.33% to close at $70.87 per barrel; London Brent for July delivery fell Crude oil futures prices fell 1.87% to close at $74.98 per barrel.

After experiencing the roller coaster market, where will the hesitant oil market go next?

Global crude oil demand mixed

Although OPEC predicts relatively strong demand for crude oil, what is “surprising” is that oil prices are still “falling.”

Zhu Runmin, a senior economist in the oil industry, analyzed to a reporter from the 21st Century Business Herald that the decline in international oil prices was mainly caused by some recent major negative events and data. For example, banks in the United States have been hit by thunderstorms one after another, from Silicon Valley Bank, Signature Bank to First Republic. Banks; In addition, U.S. inflation remained at a relatively high level in April, triggering market concerns that the Federal Reserve will keep interest rates high for longer or even raise interest rates further; there is also bad news waiting to be implemented, and crude oil exports from the Iraqi Kurdish region may resume in the near future, 3 More than 400,000 barrels/day of Kurdish crude oil, which was suspended in late month, will return to the market. At this point, negative events that have a significant impact on international crude oil prices will basically appear, and the subsequent situation may change significantly.

Xi Jiarui, senior analyst of Jinlianchuang Crude Oil, told a reporter from the 21st Century Business Herald that there are many uncertain factors in the current global crude oil demand outlook. Although Asian crude oil demand is expected to be positive, the economic downturn in Europe and the United States has led to worrying crude oil demand, thus interfering with Asian crude oil demand. The optimistic expectations form a hedge. Recent economic data in Europe and the United States have been poor, and interest rate hikes are continuing, while the U.S. banking and debt crisis continues to ferment, which is the main reason for the pressure on oil prices.

In its latest monthly report, OPEC also emphasized that factors such as geopolitical uncertainty and high inflation in Europe and the United States will drag down global economic growth this year. OPEC also noted that the U.S. debt ceiling issue has not yet been resolved and could have economic consequences.

Echoing this, the U.S. Energy Information Administration (EIA) also lowered oil prices for this year and next in its recently released monthly short-term energy outlook report. EIA predicts that the average Brent crude oil spot price this year will be US$78.65/barrel, a decrease of approximately 7.5% from April; next year the average Brent crude oil spot price will be US$74.47/barrel, a decrease of approximately 8.3% from April. EIA also predicts that the average spot price of WTI crude oil this year will be 73.62 US dollars/barrel, a decrease of about 7.1% from April; next year the average spot price of WTI crude oil will fall to 69.47 US dollars/barrel, a decrease of about 7.6% from April.

Oil prices are expected to find support

Although the oil market has been weak recently, the United States may replenish its strategic oil reserves and many places will usher in the peak oil consumption season. A series of bullish factors may support the oil market.

In October last year, the White House stated that when the price of WTI crude oil is at 67-72 US dollars per barrel or lower, the US government will begin to replenish the strategic petroleum reserve. The U.S. State Department further clarified in November last year that when oil prices stabilize at around $70, the Department of Energy will begin to purchase oil again, hoping to bottom out oil prices and stimulate future oil production.

However, in March this year, when oil prices really fell to the target price range, the US government did not take action. At that time, U.S. Secretary of Energy Jennifer Granholm said that although international oil prices were at a low in more than a year, due to the maintenance status of two strategic petroleum reserves and the 26 million barrels of crude oil sales plan announced in February, the Department of Energy would It is difficult to snap up cheap crude oil from the market and it may take years to replenish strategic oil reserves.

After the Biden administration sold about 200 million barrels of strategic oil reserves last year, the U.S. reserve dumping campaign continues this year. In February this year, the U.S. government announced that it would sell 26 million barrels of oil from the Strategic Petroleum Reserve, with expected delivery dates from April 1 to June 30. The U.S.’s current Strategic Petroleum Reserve reserves are approximately 372 million barrels, the lowest level since 1983. Some observers warn that this could put U.S. energy security at risk.

Faced with pressure from the outside world, on May 11, Granholm said that in the US Congress, the sale warAfter the authorization to reserve crude oil ends in June, the U.S. Department of Energy plans to start buying oil to replenish the reserve. Granholm’s speech provided the most detailed timetable yet for replenishing oil reserves. Oil traders have been closely watching when the U.S. government begins buying oil, which could put further pressure on a market already tight on supply expectations.

Xi Jiarui believes that the replenishment of strategic oil reserves in the United States depends on its purchase and storage time node, purchase and storage price and purchase and storage scale. According to the plan of the U.S. Department of Energy, the United States will begin to purchase and store oil in the second half of this year. Once the plan is implemented, for This will be a positive for the crude oil market and will stimulate additional demand. However, if international oil prices remain high by then, it cannot be ruled out that the United States will continue to delay the purchase and storage of strategic crude oil.

In Zhu Runmin’s view, the United States’ replenishment of strategic oil reserves is mainly to achieve economic benefits. The purchase and storage of oil when international crude oil prices are relatively low will play a relatively large role in filling the “trough” of international crude oil prices. He analyzed to reporters that the replenishment of strategic petroleum reserves by the United States will inevitably cause some crude oil to enter inventory instead of being used for consumption. It will increase demand on the demand side and reduce supply on the supply side, which will inevitably form an upward driving force for international oil prices. However, The effect will mainly depend on the scale of replenishment reserves and will also be affected by the global oil supply and demand conditions at that time. If the scale of supplementary reserves is relatively large and global oil supply is relatively tight by then, international crude oil prices will gain a relatively strong upward driving force.

Will OPEC+ cut production further?

With long and short factors intertwined, the outlook for the oil market remains uncertain. Faced with the recent relatively weak oil prices, whether OPEC+ will further expand its production reduction plan at the ministerial meeting held in early June has attracted much attention.

What is certain is that if oil prices continue to fall unexpectedly in the future, OPEC+ will never sit idly by and will take more actions when necessary.

Whether OPEC+ will further cut production will largely depend on the future of oil prices. Zhu Runmin said that if oil prices continue to weaken, OPEC+ is likely to further reduce production in the future. “The Brent crude oil futures front-month contract price of US$70/barrel should be an important line of defense for OPEC+, and they will not give up easily. Once the price effectively falls below this line of defense, it will move towards another price defense line of US$60/barrel. , OPEC+ is likely to take more drastic measures to cut production.”

Although OPEC+ claims that it will adjust production based on demand forecasts and not to influence oil prices, such remarks are difficult to convince the market. Xi Jiarui analyzed that the OPEC+ crude oil production meeting on June 4 will discuss the crude oil production plan for the second half of the year. Crude oil prices have been suppressed by expectations of economic recession and the trend has been unsatisfactory. Therefore, it is not ruled out that OPEC+ will continue to expand production cuts. Possibilities of scale. However, the actual crude oil production of the production reduction alliance has been lower than its quota plan. Unless the scale of expanded production cuts is sufficient to cover and exceed the actual reduced production, the impact of small-scale production cuts on the oil market will be very limited.

OPEC said in its monthly report that its April output fell by 191,000 barrels per day to 28.6 million barrels per day due to production problems in Nigeria and a legal dispute in Iraq.

It should be noted that the oil market may fall into a state of shortage of supply in the second half of this year. A report released by the International Energy Agency (IEA) in April showed that by the third quarter of this year, the crude oil supply gap in the global oil market will reach 2 million barrels per day, or there will be a serious supply shortage. As China’s demand recovery drives oil demand to grow rapidly, global oil demand will increase by 2 million barrels per day this year, reaching a record high of 101.9 million barrels per day.

Looking to the future, Zhu Runmin said that short-term global crude oil demand may be relatively weak for a period of time, and the market expects that consumer demand in some major oil-consuming countries will peak and fall. But in the medium term, global crude oil demand prospects will also have a growth phase that will last several years.


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Author: clsrich