The 100,000 bpd production target increase that OPEC+ set for September may end up effectively being a production cut, the IEA said on Thursday, with a possible dip in Russian production.
OPEC+ is unlikely, the IEA said, to increase production in the coming months because they are short on spare capacity.
“Comparatively low levels of operational spare production capacity, held mainly by Saudi Arabia and the United Arab Emirates, may thus all but rule out substantial further OPEC+ output increases in the coming months,” the IEA”s new Oil Market Report-August 2022 reads.
This will place the burden of meeting the anticipated 2.1 million bpd 2023 demand growth squarely on the shoulders of those producers that lie outside OPEC+, the IEA said.
The IEA noted, however, that while they were still expecting a decline in Russian crude oil production, it had revised its outlook for world oil supply upwards, with Russia’s supply declines now seen as more limited than it previously forecast.
According to new IEA data, OPEC-10’s spare capacity is 2.73 million bpd, with the total OPEC spare capacity at 3.38 million bpd. The IEA estimates the total OPEC+ effective spare capacity at 3.74 million bpd.
OPEC+, however, is not eager to tap into this effective spare capacity, which would diminish the group’s power to respond to market emergencies with increased production. After OPEC+’s last meeting in early August, OPEC+ referred to its “severely limited” spare capacity, which should be used with “great caution in response to severe supply disruptions”, reinforcing the IEA’s predictions that additional OPEC+ output increases are unlikely in the coming months.
Global crude oil inventories are now expected to grow 900,000 bpd for the rest of the year, and 500,000 bpd over 2023 H1, August’s Oil Market Report said.
By Julianne Geiger for Oilprice.com
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