OPEC+ shrugs off US pressure to announce 400,000 b/d output boost

Speaking after today’s OPEC+ meeting, Ann-Louise Hittle, vice president, Macro Oils, at Wood Mackenzie, said: “After unusual pressure from the US administration to lift its production, OPEC+ announced it is boosting output by 400,000 barrels per day (b/d) for December, in line with its 18 July 2021 agreement.

“This will be seen as disappointing by the US, which is asking for an extra increase closer to 600,000 b/d. But as long as OPEC+ actually boosts its output by 400,000 b/d, the US has indicated it will accept the outcome.

“For OPEC+, doubts remain on the reality of the oil supply crunch. Wood Mackenzie is also cautious. Gas-to-oil fuel switching is not at the levels widely feared in the market of up to 2 million b/d. We estimate it is closer to 200,000-300,000 b/d and supply is adequate to meet demand.”

Hittle added that inventories are low as demand continues its recovery from the pandemic low of Q2 2020. These are expected to build in the first quarter. Wood Mackenzie has  not heard of oil buyers going without cargoes or supply that is needed.

She added that total world oil demand remains below 2019 levels. Wood Mackenzie expects it to average 98.9 million b/d for Q1 2022, still below Q1 2019 average of 99.7 million b/d.

Hittle said: “Furthermore, our forecasts remain subject to downward risk due to the impact of the pandemic on economic growth and mobility as some cities or countries continue to use lockdowns intermittently to control the pandemic. Our short-term demand forecast for Q4 2021 has been revised down due to this impact, particularly in Asia Pacific.”

On the supply side, OPEC crude oil production has already increased sharply during 2021, from an average of 25 million b/d in Q1 2021 to 27 million b/d in Q3 2021. Wood Mackenzie expects a further increase for Q4 2021, averaging 800,000 b/d from the third quarter average.

Hittle added: “These volumes have helped the market remain relatively balanced until this quarter when we see a moderate seasonal implied stock draw.

“As it becomes clearer the world is going to survive the winter with enough oil to meet demand, we expect prices to fall from the recent highs of $87 to $85 per barrel for Brent. This process may be already underway.”