Comparative Analysis of Monthly Reports on the Oil Market

Oil Market Context

Oil prices fall on macro concerns but physical markets remain tight

Oil prices have fallen by nearly 18% from their peak in late-September on macro economic concerns and negative sentiment. The number of WTI short positions have more than quadrupled over the past month to their highest level since July. WTI's prompt spreads flipped to a bearish contango for short stints earlier this month, also for the first time since July.

However, global demand continues to defy weak economic signals. China's demand continues to set records with the latest data showing demand was at an all-time high in September at 17.1 mb/d and was up 1.9 mb/d year-on-year. Similarly, the latest final data for the US shows demand in August surpassed expectations and grew by >0.6 mb/d year-on-year.

Slightly offsetting the robust growth in demand has been record production levels in the US, Brazil, and Guyana. US crude production rose to a record high in August as well productivity and operational efficiencies have more than offset the effect of reduced drilling. The US oil rig count remains >30% below pre-COVID levels.

Global crude inventories are estimated to have fallen by more than 140 mb in 3Q23.

OPEC+ set to meet for the first time in five months

OPEC+ is scheduled to meet on Sunday, November 26th in Vienna. It will be the first full Ministerial Meeting for the group since June 4th. The group will discuss production levels for 2024. Currently, a 2 mb/d production cut announced in October 2022 is scheduled to extend through the end of 2024. Additionally, a subset of the group has implemented a voluntary cut of 1.16 mb/d, announced on April 2, 2023, which are scheduled to expire at the end of 2023. Furthermore, Saudi Arabia has been cutting an extra 1.0 mb/d since July 2023 and may extend or rescind the cuts.

2023 Forecast Highlights:

• Global demand:

  • IEA, OPEC, and EIA raised their global demand growth forecasts marginally on stronger 2H23 demand (primarily the US and China). IEA and OPEC remain aligned on global demand growth (~2.4-2.5 mb/d) while EIA sees lower growth (1.9 mb/d) from a weaker Chinese forecast.
  • IEA continues to see ~1.0 mb/d higher Chinese demand growth vs. EIA and 0.6 mb/d higher vs. OPEC.

• Non-OPEC and OPEC NGL supply:

  • IEA and EIA revised up 2023 non-OPEC supply growth by 0.2 mb/d on stronger US and Brazil production in 2H23. OPEC revised up 3Q23 production by 0.3 mb/d on higher Russian production.
  • IEA and EIA both now see non-OPEC supply growth at 2.3-2.4 mb/d while OPEC continues to see lower growth at 1.7 mb/d.
  • The largest divergence in supply forecasts is for Russian production where OPEC sees 4Q23 supply levels at 1.0-1.2 mb/d below IEA and EIA forecasts.
  • All three outlooks expect the US to be the largest driver of non-OPEC supply growth, adding around 1.3-1.5 mb/d of supply this year.

• "Call on OPEC":

  • OPEC and IEA balances imply a 1.0-3.0 mb/d global supply deficit in 4Q23 if OPEC production stays at October levels.

• October OPEC production:

  • OPEC secondary sources show OPEC production rose by 80 kb/d in October to 27.90 mb/d led by a 51 kb/d increase from Angola and a 46 kb/d increase from Iran. IEA estimates show OPEC crude production remained flat at 28.21 mb/d. IEA estimates 0.3 mb/d higher UAE production compared to OPEC secondary sources.

• OECD inventories:

  • OPEC estimates OECD commercial stocks fell by 15.6 mb in September to 2,783 mb and stood 118 mb below the latest five-year average and 184 mb below the 2015-2019 average. IEA estimates OECD commercial inventories rose by 1.8 mb to 2,813 mb and stood 71.2 mb below the five-year average.

2024 Forecast Highlights:

• Global demand:

  • IEA and EIA both revised up their 2024 demand growth forecasts slightly to 0.9 mb/d and 1.4 mb/d, respectively. OPEC continues to see more robust demand growth at 2.2 mb/d.
  • IEA sees OECD demand declining by 0.3 mb/d next year while 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 climbing in 1Q24 to ~2 mb/d above IEA and EIA forecasts.
  • 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 104.1 mb/d by 4Q24 vs. EIA's 102.9 mb/d.

• Non-OPEC and OPEC NGL supply:

  • EIA revised up 2024 non-OPEC supply growth by 0.1 mb/d to 1.2 mb/d on a stronger Brazil forecast.
  • IEA revised down non-OPEC supply growth by 0.1 mb/d to 1.3 mb/d on slightly lower US and Canadian growth.
  • OPEC's forecast was relatively unchanged from last month at 1.4 mb/d.
  • All three forecasts both see US production growth slowing to 0.4-0.6 mb/d next year from >1.2 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 27.7 mb/d (EIA) to 29.9 mb/d (OPEC). IEA falls in the middle at 28.4 mb/d.
  • OPEC's 2024 balance is ~1.5 mb/d tighter than IEA's and 2.2 mb/d tighter than EIA's primarily due to OPEC's higher demand forecast and tighter baseline (2023) balance. Notably, OPEC's balance implies a 2 mb/d supply deficit in 2024 if OPEC production were to remain at October levels.

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