Data from the Organisation of Petroleum Exporting Counties (OPEC) has indicated that global oil markets are on track for a sharp supply deficit of more than 2 MMbpd this quarter as Saudi Arabia slashes production.
OPEC’s output tumbled last month as the Saudi kingdom implemented a unilateral cutback to shore up markets, according to a report from the group on Thursday.
Bloomberg reported that Saudis will maintain the cut this month and next as planned, meaning OPEC’s production could average the current rate of about 27.3 MMbpd for the whole quarter, which is about 2.26 million a day. This is less than what consumers require, potentially resulting in the steepest inventory decline in two years.
Oil prices have climbed to a seven-month high near $88 a barrel in London as world consumption rises toward record levels while OPEC and its partners constrain supply, depleting inventories in the U.S. and elsewhere.
While Riyadh insisted on prolonging and even deepening the supply curbs if necessary, the report noted that the consuming nations have criticized the Saudis and their allies for constricting output, warning that a renewed inflationary spike could inflict more pain on consumers.
Still, it’s possible that stockpiles don’t fall as dramatically as OPEC’s projections imply. Production from OPEC’s 13 members declined by a hefty 836,000 bpd in July as the Saudis lowered production to about 9 MMbpd, according to the group’s report. Oil inventories in developed nations are below their five-year average, OPEC estimates, the report added.
Supplies are also shrinking from a wider alliance of producers known as OPEC+, which includes Russia. After holding exports steady for months to fund its brutal war against Ukraine, Moscow is belatedly fulfilling an OPEC+ agreement by reducing shipments.
The organisation forecast that daily global oil consumption will increase by 2.4 MMbbl this year to an average of 102 MMbbl and a further increase of 2.2 MMbpd in 2024.