BAKU, Azerbaijan, May 24
By Leman Zeynalova - Trend:
OPEC+’s reaction on supply will largely be driven by demand, Trend reports citing the US JP Morgan Bank.
“Even keeping supply fully out of the equation, it looks like an extreme stretch to get the nearly 4 mbd of additional draws necessary to get to $100/bbl on pure fundamentals. But the hypothetical above is all moot right from the start if stronger demand than we expect just results in a bigger offsetting flow of supply from OPEC+. Without having to yet battle with the US for market share, we believe over the next quarters OPEC+’s reaction function on supply will largely be driven by demand, with the alliance calibrating its supply to capture ~50 percent of the recovery in demand, in line with its market share, while also ensuring inventories continue to draw,” said the Bank.
In the Bank’s base case this results in OPEC+ keeping about 4-5 mbd offline through 2021.
“Hence, even if the upside demand scenario explored above does come to fruition, in reality demand would likely have to be even significantly higher to get the additional draws necessary for fundamentals alone to warrant $100/bbl. Moreover, as the headlines this week on Iran highlight, supply risks outside the bound alliance members are shifting towards increased production. Regardless of the precise timeline on a deal, a steady increase in Iranian exports in the last months indicate Tehran is pursuing a rather aggressive ramp-up of production. We see Iranian crude and condensate production increasing from around 2.8 mbd in 1Q21 to a Dec-21 exit rate of 3.2 mbd but not reaching full production capacity of 4.2 mbd until early 2023. A more aggressive ramp up in Iranian production and exports than expected would be yet another limiting factor on fundamentals pulling prices up towards $100/bbl alone.”
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