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Vista Projects
Copper Tip Energy
Vista Projects

OPEC+ Producers Are Caught Between Diverging Oil Forecasts

These translations are done via Google Translate

Analysts at producer and consumer agencies have different takes on how much the world needs.

Analysts from the International Energy Agency and the Organization of Petroleum Exporting Countries are growing even further apart on how much oil the world needs.

The two agencies have updated their forecasts for the first time since the wider OPEC+ group of oil producers unveiled a program of output increases on June 2.

If OPEC’s monthly report is to be believed, the group and its allies should do much more than slowly unwind the most recent voluntary cuts.

The current plan is to gradually raise output targets by nearly 2.5 million barrels a day, but the increases won’t begin until October and will need until September 2025 to complete.

The latest OPEC outlook shows the wider group needs to boost production by 2.7 million barrels from its current level as soon as next month if it’s to match global supply to demand.

What’s Needed From OPEC+

Planned OPEC+ output increases are well below what OPEC says are needed, but more than the IEA deems necessary

Source: Bloomberg calculations using data from OPEC, IEA and the Saudi Energy Ministry

Note: The columns show incremental output planned under the latest OPEC+ agreement, the lines indicate required increases from the group’s reported May production level to balance supply and demand, according to OPEC and IEA monthly reports.

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Demand will grow by 2.25 million barrels a day this year, OPEC says, a figure that’s unchanged from its initial forecast published 11 months ago.

The latest IEA report also shows that more OPEC+ oil is needed in the short term. Current production is about 1.2 million barrels a day below what’s needed to balance supply and demand over the second half of the year, its numbers show.

But after that, things get more difficult for the producer group. By the first quarter of 2025, the world will need even less of its oil than it’s pumping now. The IEA’s figures for the rest of next year suggest there’s too much optimism in the plans to raise output.

A word of caution, though: the IEA underestimated demand last year. Since January, it has raised that assessment by 520,000 barrels a day, five times the increase OPEC has made. The two forecasters now have very similar numbers for 2023 oil use.

But it’s clear that producers don’t believe the OPEC forecast and neither does the oil market. If they had, ministers would have agreed on a more rapid return of supply and prices wouldn’t have slumped, albeit briefly, after they announced it.

In a nod to the IEA’s view, the output plan includes a clause to pause or reverse the increases if needed. It’s one that’s been stressed repeatedly in the past week, helping prices to recover from the slide OPEC+ triggered.

–Julian Lee, Bloomberg News

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