OPEC predicts “modest” oil surplus amidst demand lull for Q2 2023

Grant Smith, Bloomberg March 14, 2023

(Bloomberg) – Global oil markets appear on track for a modest surplus next quarter amid a seasonal lull in demand, according to OPEC.

The Organization of Petroleum Exporting Countries is pumping about 28.92 MMbpd, or about 300,000 a day more than it expects will be needed in the second quarter, it said in a monthly report. World oil consumption typically eases around this time, a softer patch between the end of winter and start of the summer driving season. 

The surplus could be even larger if oil production from Russian continues to prove resilient to international sanctions, because OPEC’s outlook assumes a sharp drop in the country’s output next quarter.

“There exist some upside potential and downside risks” to demand, OPEC’s Vienna-based research department said in the report on Tuesday. “Given the ongoing high level of uncertainty with regard to the timing and extent of a full global economic recovery to pre-pandemic levels,” the OPEC+ coalition will need to remain cautious.  

Led by Saudi Arabia, OPEC and its partners are restraining output to keep world markets in balance amid a shaky rebound in consumption and fragile economic outlook, which has faltered further this week in the wake of a bank collapse in the U.S. Oil prices plunged below $80 a barrel in London on Monday for the first time in a month.

Despite this turmoil, OPEC largely left estimates for average global supply and demand this year unchanged, projecting that world consumption will climb by 2.3 MMbpd to a record of 101.9 million a day.

The group sharply increased estimates for supplies this quarter from Russia, which have remained surprisingly strong despite international sanctions over the invasion of Ukraine and Moscow’s threats of retaliatory cuts. OPEC expects Russia will pump 10.9 MMbpd this quarter, about 620,000 bpd more than it estimated in last month’s report.

Nevertheless, OPEC kept forecasts for Russian output during the rest of the year unchanged, predicting that it will plunge next quarter by 900,000 bpd — an even bigger drop than was witnessed during the international backlash when Moscow when launched its war a year ago.

Key members of the OPEC+ coalition are due to hold an online monitoring session to review oil market conditions early next month, and a full ministerial meeting at its Vienna headquarters in June. Group leader Saudi Arabia has said the alliance intends to keep oil production levels unchanged for the entire year, regardless of what happens in the market.

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