Comparative Analysis of Monthly Reports on the Oil Market

Oil Market Context

Crude and product markets continue to tighten on robust demand

Near-record global demand, in addition to OPEC+ production cuts, helped drive global visible oil inventories lower by nearly 2.5 mb/d in August. Global inventories fell to a 13-month low led by steep declines of oil on the water and inventories in China.

Tightening markets have caused crude oil prices to continue to rally into September, with Brent exceeding $92/bbl for the first time since November.

Notably, diesel prices are rising even faster than crude, surging more than 40% in the US and Europe since May. Tightness in refining capacity, exasperated by unplanned outages and under-investment, has driven refining margins to an 8-month high. Diesel markets could face additional pressure in upcoming months as refinery maintenance season ramps up and refinery yields of diesel remain reduced due to limited access to medium and heavy crude grades.

Chinese demand remains resilient despite economic concerns

Chinese demand in July reached an all-time seasonal high for the third-time this year despite weakening economic data. Oil demand in China has averaged up ~1.6 mb/d y/y so far this year. Growth has been driven by the ramp-up of new and expanded petrochemical facilities and increased mobility. Jet/Kerosene demand topped 1 mb/d for the first time in July after slumping to as low as 0.4 mb/d during lockdowns last year. Over the summer period, domestic flight numbers were nearly 33% above pre-COVID levels while international flights were still ~15% below pre-pandemic levels.

Saudi Arabia and Russia extend voluntary production cuts through December

On September 5th, Saudi Arabia announced an extension of its voluntary 1 mb/d production cut through December. The press release noted that the decision would be reviewed monthly, and the cuts could be deepened or reversed. Russia also announced it would extend its voluntary 300 kb/d cut through end-year.

2023 Forecast Highlights:

• Global demand:

  • IEA and OPEC remain fairly aligned on global demand growth (~2.2-2.4 mb/d) following marginal revisions this month. EIA sees lower growth (1.8 mb/d) despite a slight 0.1 mb/d upward revision this month.
  • 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.
  • EIA and IEA's demand estimates incorporated a ~0.3 mb/d downward adjustment to historical and forecasted US demand due to a reclassification of natural gasoline and unfinished oils from product supplied to crude oil supply. This revision impacted historic and forecasted demand levels but did not materially impact demand growth.

• Non-OPEC and OPEC NGL supply:

  • OPEC and IEA revised up 3Q23 non-OPEC supply by 0.4 mb/d primarily on higher supply in Russia and Brazil. EIA's forecast remained largely unchanged from last month.
  • IEA and EIA both now see non-OPEC supply growing this year by 2.0-2.1 mb/d. OPEC sees lower growth at 1.6 mb/d.
  • The largest divergence in supply forecasts is for Russian production. OPEC sees a 0.58 mb/d decline in Russian output this year vs. IEA's forecast of a 0.16 mb/d annual decline and EIA's forecast of a 0.30 mb/d decline.
  • All three outlooks expect the US to be the largest driver of non-OPEC supply growth, adding around 1.1-1.3 mb/d of supply this year.

• "Call on OPEC":

  • All three forecasts show the 2H23 "call on OPEC" will exceed recent OPEC production levels. OPEC's forecast shows that the call on OPEC will rise to 30.7 mb/d by 4Q23, implying a 3.2 mb/d supply deficit if OPEC production remains at August levels (27.5 mb/d).

• August OPEC production:

  • OPEC secondary sources show OPEC production rose by 0.11 mb/d in August to 27.45 mb/d led by a 143 kb/d increase from Iran. IEA estimates show OPEC crude production rose by 0.09 mb/d to 27.96 mb/d. IEA estimates a higher production figure for UAE and Iran vs. OPEC secondary sources.

• OECD inventories:

  • IEA estimates OECD commercial inventories rose by 27.7 mb in July to 2,814 mb and stood 102.6 mb below the five-year average. OPEC estimates OECD commercial stocks fell by 7.9 mb in July to 2,779 mb and stood 138 mb below the latest five-year average and 190 mb below the 2015-2019 average.

2024 Forecast Highlights:

• Global demand:

  • EIA revised down its 2024 global demand growth forecast by 0.3 mb/d to 1.4 mb/d y/y. IEA and OPEC's demand growth forecast remained largely unchanged from last month at 1.0 mb/d and 2.2 mb/d, respectively.
  • IEA sees OECD demand declining by 0.4 mb/d next year while EIA now sees flat growth and OPEC expects 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 103.5 mb/d by 4Q24 vs. EIA's 102.8 mb/d.

• Non-OPEC and OPEC NGL supply:

  • IEA, OPEC, and EIA all see 1.3-1.4 mb/d of non-OPEC supply growth next year.
  • All three forecasts both see US production growth slowing to 0.4-0.6 mb/d next year from >1.1 mb/d this year. Despite a significant slowdown, the US is still the strongest driver of non-OPEC supply growth in 2024.
  • Other drivers of non-OPEC supply growth include Brazil, Guyana, and Canada.

• "Call on OPEC":

  • The "call on OPEC" for next year ranges from 27.8 mb/d (EIA) to 30.0 mb/d (OPEC). IEA falls in the middle at 28.4 mb/d. All three implied figures are above August's actual OPEC production of 27.5 mb/d, implying 0.3-2.5 mb/d of global inventory draws if OPEC production remained constant. Notably, Saudi Arabia's voluntary cut of 1 mb/d is currently expected to expire at the end of 2023 along with the 1.66 mb/d of voluntary cuts that were announced by several OPEC+ members on April 2nd.
  • OPEC's 2024 balance is ~1.6 mb/d tighter than IEA's and 2.2 mb/d tighter than EIA's primarily due to OPEC's higher demand forecast.

Key Charts