A guest post by Dr Coyne
OPEC‘s Monthly Oil Market Report (MOMR) for April 2022 was released last week. The last month reported in each of the graphs that follow is March 2022 and the production reported for OPEC countries’ crude oil production is in thousands of barrels per day (kb/d). In most of the graphs that follow, the blue line corresponds to monthly production and the red line to the centered twelve-month average (CTMA).
OPEC production increased by 57 kb/d according to secondary sources in March 2022. Production for January 2022 has been revised upwards by 45 kb/d compared to what was reported last month and the February 2022 production was revised upwards by 27 kb/d compared to March 2022 MAMAN. Most of OPEC’s production increase came from Saudi Arabia (54 kb/d), followed by Kuwait (25 kb/d) and the United Arab Emirates (23 kb/d). Five OPEC members saw increases of less than 15 kb/d (total of 44 kb/d for this group of 5 countries). Five OPEC countries recorded lower production in March, with Libya (-37 kb/d) and Nigeria (-24 kb/d) having the largest production declines and the other three countries having higher production low in March having a combined drop of 27 kb. /D.
In the chart below OPEC 13 crude and Russian C+C are shown, I expect OPEC 13 crude plus Russian C+C to be probably very close to the peak at short term, unless sanctions are lifted against Iran in the near future. Any potential future increases for OPEC 13 will likely be more than offset by cuts in Russian C+C production over the next 6-12 months with no increase in production from Iran.
Global liquids production rose above the level of 24 months earlier based on OPEC estimates in Figure 4 above.
In Figure 5 above, we see that OPEC produced 1.76 Mb/d less than needed to maintain market equilibrium in 2021, if we assume that their estimates of supply and demand are correct. This implies a drawdown on global oil stocks of around 642 million barrels in 2021. As shown in Figure 7 above, OECD commercial stocks have fallen by around 450 million barrels in 2021, from so that the rest of the inventory drawdown came either from government-controlled inventory. , oil on water or non-OECD stocks. We know that OECD government inventories decreased by about 57 million barrels in 2021 and oil on water increased by 54 Mb in 2021 (see appendix MOMR), implying that inventories outside the OECD fell by around 189 million barrels in 2021.
My estimate of OPEC capacity is around 130 kb/d above the March 2022 production level assuming Iranian sanctions are not lifted in 2022. Currently, negotiations with Iran are not going very well and it seems unlikely that a compromise will be found soon. This suggests that oil inventories will continue to decline if the OPEC call estimates for the third and fourth quarters of 2022 depicted in Figure 6 above turn out to be correct. Note the large increase in non-OPEC production projected in 2022 in Figure 6, a production increase of approximately 2630 kb/d in one year (from 21Q4 to 22Q4) is projected for non-OPEC oil producers, of which 960 kb/d for the United States, it seems that this forecast is probably too optimistic for oil supply. Ultimately, oil supply will most likely be tight in 2022 and oil prices could be high unless a recession destroys some of the demand.
In the chart above, we see the combined production of the Big 5 OPEC producers where most of the spare capacity could reside. If we deduct Iran’s spare capacity from the other 5 OPEC countries in Figure 8 and then deduct production in March 2022, we are left with only about 130 kb/d of spare capacity for Iran. OPEC (approximately 28,687 kb/d of capacity when we add production from the other eight OPEC countries in March 2022.) Note that I am using OPEC’s maximum 12-month average production to estimate capacity. If Iranian sanctions were lifted, around 1,275 kb/d of OPEC capacity could be added over 6 to 12 months, bringing total capacity to 29,960 kb/d.
If we consider the other eight OPEC producers in Figure 9 above and look at the trend from January 2015 to December 2019, we find an annual rate of decline of around 317 kb/d. Much of any spare OPEC capacity that might have existed in December 2019 may have been eroded by the drop in production from this group of 8 OPEC countries (a decrease of about 1000 kb/ j from January 2019 to January 2022). I have used March 2022 production from these 8 countries to estimate capacity in March 2022, the concern is that future decline may reduce OPEC’s production capacity unless new resources are developed.
Consider Figure 10 above, where we omit three politically troubled nations (Libya, Nigeria, and Venezuela) from the group of 8 nations in Figure 9. Venezuela experienced a steady decline from January 2016 to January 2020 at an annual rate of over 400 kb/d, Libya and Nigeria have experienced large fluctuations in production over the years. The group of 5 nations in Figure 10 experienced a relatively steady decline from January 2015 to December 2019 at an annual rate of 110 kb/d. Venezuela may have bottomed out and should see production stagnate or very slowly decline in the future, Nigeria and Libya are harder to predict due to instability.
In 2018 and 2019, Libyan and Nigerian production decreased at an annual rate of 95 kb/d. If we add these 5 OPEC countries in figure 10, we obtain an annual decrease of about 205 kb/d over the period 2018 to 2019 for 7 countries (Venezuela was excluded from the initial group of eight countries ). Some of this decrease could be due to quotas in 2019 (although Libya had no quota, the other 6 nations had quota for most of 2019.)
A rough estimate of the future annual rate of decline for the 8 OPEC countries in Figure 9 is around 250 +/- 50 kb/d. It is unclear if the big 5 OPEC producers will be able to compensate for this drop in production in the future, I assume they have the resources to increase production at an annual rate of 250 kb/ d or more, but time will answer this question.
Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.