Due to rising worries about the strength of demand, Opec+ will decide on 1 September whether to proceed with a quota increase of 400,000 b/d for October.
Each month from August through April, Opec+ has the option of approving or amending its agreement to boost collective production limits by 400 thousand barrels a day, and by 432,000 barrels per day from May of next year until the remaining cutbacks are entirely undone. As a result of the agreement, rate rises can be halted for three months in reaction to market conditions. After a policy disagreement with the UAE in July, a simple Opec+ meeting on September 1 might help stabilize the market.
Some might be questioning if Opec+ would delay the 400,000 b/d quota increase anticipated for October because to current market weakness. As a result of growing concerns about the status of oil demand growth, oil prices have decreased by $4-5/bl since the end of July, according to the Energy Information Administration. In May-July, Saudi Arabia recovered the additional 1mn b/d oil output it reduced in February-April, resulting in a significant surge in Opec+ supply. This excess oil has already caused problems for Saudi Arabia and other Opec+ members such as Iraq.
The demand for Covid-19 Delta in Asia-Pacific is being hampered by growing infection rates and greater movement limitations. Covid-19 containment regulations and crude import quota restrictions are hurting China’s purchase interest in Covid-19 and crude oil. A drop of about 400,000 barrels per day (b/d) is predicted in Chinese refineries in August, as private refiners struggle to get oil because of limited import quotas. Chinese oil imports rose somewhat in August, according to Argus trade data, before declining steadily in September and October.
There are also supply-side pressures to contend with as well as demand-side challenges. Currently, India is releasing volumes from its strategic petroleum reserve in order to commercialize half of its potential. It’s also been announced that the US Department of Energy would be selling as much as 20mn bl of sour crude that will arrive in the fourth quarter. As a result of rising gasoline prices, President Biden’s administration called on Opec+ to take more aggressive steps to reverse supply restrictions. Nevertheless, Opec+ is not expected to retaliate because economic reasons have superseded diplomatic appeals in deciding the group’s policy. In addition, there is little cause or inclination to modify policy for October, according to several delegates.
To refocus the scope
To monitor market circumstances, the Opec+ Joint Technical Committee will convene on August 31. A tightening supply picture might deter the firm from straying from the present approach, according to the report. Inventory levels have decreased below 2015-2019 averages as well as recent five-year averages for oil stocks in OECD countries. Stocks are expected to stay below this average even with the increased Opec+ supply, according to delegates at the conference. Because of financial restrictions, US shale oil production growth is limited, and vaccination rollouts in most major nations might aid economic recovery. In the fourth quarter, the IEA predicts demand growth of 600,000 b/d below that of July-September, this might assist counteract historically low purchase levels in the period.
Due to stagnant or falling capacity, not all Opec+ members will be able to contribute to the monthly output increases. In July, Angola’s output fell to its lowest level in 15 years due to a lack of investment and natural decline at aging fields, despite the country’s monthly production increases under the Opec+ agreement. It’s no secret that Nigeria’s infrastructure is lacking.
The timeline for the return of Iranian supply to the market keeps slipping, with no date scheduled for when talks on a US-Iran nuclear deal will resume.