OPEC Cuts vs An Incredibly Tight Market: Both Cannot Be True

Energy Blog

Last week, Saudi Arabia announced a 1 mmb/d oil output cut bringing total announced OPEC+ cuts to 3.7 mmb/d since last October.

In fact, OPEC+ began permanently managing oil markets at the beginning of 2017. Since then, cumulative cuts averaged 4.24 mmb/d since the start of 2022, or about 4% of global output (Figure 1).

Figure 1. OPEC+ withheld an average of 4.24 mmb/d in 2022-23 vs December 2016. June 2023 withholding estimated at 4.9 mmb/d. Source: EIA STEO & Labyrinth Consulting Services, Inc.

That really puts the standard analyst supply-demand balance metric into question. Demand is weak enough that Saudi Arabia needs to cut 1 mmb/d but OPEC research projects demand growth of 2.5 mmb/d in the second half of 2023 to a record 103 mmb/d. All this with more than 4 mmb/d already being withheld from supply.

Yet analyst Eric Nutall stated recently that,

“The market’s recessionary fear is not allowing oil price today to reflect how tight things really are…Most stats that we look at…Chinese record demand, Indian record demand, JODI reporting record demand…point very, very strongly…[that] in the next few weeks, we should be seeing the largest stock draws in history.”

What about the 4.2 mmb/d that OPEC is currently holding back from the market? I suppose that is either noise or fiction.

The future that Nuttall describes is speculative. It’s also based on supply-demand balance that I have questioned for a long time.

What’s not speculation is that the entire OPEC+ oil market management project is an exercise in futility. Once started, of course, there’s no going back.

Yet somehow the disconnect between 5 years of analyst warnings about tight supply and more than 4 mmb/d of withheld volumes must be addressed. They can’t both be true.

Art Berman is anything but your run-of-the-mill energy consultant. With a résumé boasting over 40 years as a petroleum geologist, he’s here to annihilate your preconceived notions and rearm you with unfiltered, data-backed takes on energy and its colossal role in the world's economic pulse. Learn more about Art here.

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  1. EnergyAndEntropy on June 10, 2023 at 3:24 am

    Margret Thatcher never told the public in the 1980s – largely closing all the British coal mining industry – that there has been very little coal remaining in the UK to mine – anyway.

    Thatcher has preferred becoming hugely hated – rather than telling her people – look! there is no coal left in the ground to mine…

    Thatcher called a witch and worse – when died – but never, to date, anyone has told the public in the UK – how little of British coal can be actually mined – without diesel, if at all;

    “No energy store holds enough energy to extract an amount of energy equal to the total energy it stores.
    Energy, like time, flows from past to future”.

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