BAKU, Azerbaijan, Apr.22
By Leman Zeynalova – Trend:
OPEC+ is expected to zero oil production cuts by late 2022, Trend reports citing Fitch Solutions.
“In our core scenario, OPEC+ will continue to gradually ramp up production by reducing the production cut levels gradually. We expect the cuts to slowly reduce to zero by the end of 2022. This would entail the production curtailment going beyond the current expiry target of April 2022. In our view, the production cut level will be significantly lower than the original 5.2mnb/d target for April, at 2.7mnb/d. The main factors that we believe that would mandate lower cuts are near-term demand growth peaking in 2021 and the rise in non-OPEC+ production into 2023. If OPEC+ wait too long to return the proposed 5.2mnb/d post-April 2022, the market will have less of an ability to absorb additional production given the slower growth in demand we expect and the rise of additional output from non-OPEC+ sources and other OPEC exempt countries, Iran and Libya,” said the company.
Having a substantially lower volume of barrels to bring back to the market post April 2022 would have less of an impact on the supply balance and keep fundamentals broadly supportive of higher prices, according to Fitch Solutions.
“However, if non-OPEC+ barrels return at an accelerated pace there may be little scope to increase OPEC+ production without deterioration of prices as fundamentals flip to oversupply. Compounding the timing of additional supply, we forecast demand growth in 2023 to fall, to back to trend of approximately 1mnb/d of new demand. Given this outlook 2023 looks to be significantly oversupplied.
Lingering uncertainty around global oil demand and OPEC’s monthly assessment and flexibility pose significant risks to our updated production forecasts. However, recent high frequency data point to solidifying demand outlook of higher consumption. Despite the optimistic assessment for demand in H2 2021, OPEC+ cautioned that vigilance would be required given oil’s recent bouts of price volatility. Future easing of production cuts will remain highly dependent on the wider macroeconomic recovery and related consumption of oil. If the recovery were to stall, we would expect the group to pause any production increases. The abundance of caution however, could see the limited window for significant production increases narrow as demand growth is expected to slow in 2022, giving more room from competing producers to bring new production online at today’s improved oil prices,” said Fitch Solutions.
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