Argus Media Limited

06/14/2022 | News release | Distributed by Public on 06/14/2022 06:25

Opec trims oil supply growth forecast on Russia losses

Opec has slightly trimmed its forecast for this year's non-Opec supply growth, mainly on the back of a lower estimate for Russian production. It kept its demand growth projections roughly unchanged.

In its latest Monthly Oil Market Report (MOMR), Opec said it sees non-Opec liquids supply growth of 2.1mn b/d this year, down by 250,000 b/d from its estimate in May that itself was down by 300,000 b/d from April. Opec now expects Russian liquids output to drop by 170,000 b/d on the year to 10.63mn b/d in 2022, compared with its estimate in May for an 80,000 b/d rise to 10.88mn b/d.

Addressing the ongoing effects of Russia's invasion of Ukraine, Opec said: "It will be important to monitor how consumers deal with a shortfall in supply of agricultural products from Ukraine and Russia, and what consequences a potential decline in Russian fossil fuel exports to G7 economies could have for energy supplies, energy prices and consequently global economic growth."

Russia is the main driver of this year's projected supply declines, with smaller contributions from Indonesia and Thailand. Opec expects output growth from the US, Brazil, Canada, Kazakhstan and Guyana.

On the demand side, Opec held steady its forecast for global growth at 3.4mn b/d this year, for an average of 100.29mn b/d. It said buying interest has been sustained by bolstered economic momentum in services sectors including transportation, leisure and hospitality, which Opec anticipates will extend into the summer holiday season.

"However, once the summer holidays are over, it will remain to be seen to what extent inflation, rising cost of living, financial tightening and rising geopolitical uncertainty, dampen the growth dynamic towards the end of the year," it said.

The group has trimmed its projection for oil demand growth from China, the world's largest crude importer, by 30,000 b/d to 370,000 b/d this year. It warned of downside risks to this arising from the country's 'zero-Covid' policy that has seen it implement a series of strict lockdown measures. Any new restrictions could "delay the consumption recovery, discourage investment, disrupt external demand, and shrink growth," Opec said.

Earlier this month, the Opec+ coalition decided to accelerate the pace of unwinding its production cuts, to 648,000 b/d of increases in July and August rather than the 432,000 b/d pencilled in for July, August and September. In its MOMR Opec forecast demand for the group's own crude at 29.15mn b/d in 2022, up from the 29.05mn b/d it estimated in May and around 1mn b/d higher than in 2021.

The group's production averaged 28.51mn b/d in May, down by 176,000 b/d from April, according to the seven Opec secondary sources, which include Argus. The steepest discrepancy between Opec secondary sources and directly communicated production was observed in Saudi Arabia. Riyadh reported output of 10.538mn b/d in May, while secondary sources found an average 10.424mn b/d.

Citing preliminary data, Opec said OECD commercial crude stocks rose by 9.3mn bl on the month to 1.293bn bl in April, roughly 129mn bl below the same period of 2021, 180mn bl under the latest five-year average and 179mn bl below the 2015-19 average that Opec uses as the benchmark of its production deal.

By Ruxandra Iordache