The surprise OPEC+ cuts could push the oil market into an even higher supply deficit later this year and weigh on consumers and global economic recovery and growth, the International Energy Agency (IEA) said on Friday.
“Our oil market balances were already set to tighten in the second half of 2023, with the potential for a substantial supply deficit to emerge,” the agency said in its Oil Market Report for April today.
“The latest cuts risk exacerbating those strains, pushing both crude and product prices higher. Consumers currently under siege from inflation will suffer even more from higher prices, especially in emerging and developing economies,” the agency noted.
Some of the biggest OPEC+ producers announced early this month they would remove another 1.16 million bpd from the market between May and December 2023, on top of Russia’s 500,000-bpd cut which was extended until the end of the year.
The IEA believes the recent build in commercial inventories could have played a part in the OPEC+ decision to further restrict supply.
OPEC itself said on its own report on Thursday that commercial OECD oil stockpiles had been rising in recent months, pointing to a less tight market than at this time last year.
The IEA said in its report on Friday, commenting on the OPEC+ announcement, “While apparently a move to support declining prices amid financial turmoil in mid-March, rising global oil stocks may have also contributed to the decision.”
The trend of rising stocks was already reversing by March, with OECD industry stocks plunging by 39 million barrels, their biggest monthly decline in over a year, according to IEA’s estimates.
China’s resurging demand, especially in the latter half of 2023, is set to drive global oil demand up by 2 million bpd in 2023 to a record 101.9 million bpd, the agency said, leaving its estimates unchanged from last month’s report.
But the OPEC+ cuts risk creating a significant supply deficit, the IEA said today, noting that meeting demand growth could be challenging, “as the new OPEC+ cuts could reduce output by 1.4 mb/d from March through year-end, more than offsetting a 1 mb/d increase in non-OPEC+ production.”
“Growth from the US shale patch, traditionally the most price-responsive source of more output, is currently limited by supply chain bottlenecks and higher costs,” the agency noted.
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By Tsvetana Paraskova for Oilprice.com
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