OPEC Predicts Recovering Oil Market Will Absorb Extra Supply

(Bloomberg) -- OPEC predicted global oil markets will continue to recover in the coming months as demand rebounds, allowing the group and its allies to proceed with their recently agreed production increases.

“Reductions in surplus inventories as well as an expected pick-up in product demand will pave the way for a cautious recovery of oil market balance in the summer months,” the cartel said in its monthly report. It slightly boosted this year’s consumption forecast.

Rising demand means stockpiles should continue to diminish even as the Organization of Petroleum Exporting Countries and its allies revive about 2 million daily barrels of halted output over the next three months, the report indicated.

OPEC+, the 23-nation alliance led by Saudi Arabia and Russia, surprised traders on April 1 by announcing it would restore some of the supplies that were idled when demand collapsed during the pandemic.

Markets nonetheless absorbed the news calmly and prices have since held steady near $64 a barrel in London, as further signs of improving demand and economic confidence suggested the coalition made the right call.

The report published on Tuesday by OPEC’s Vienna-based research department added to the evidence.

The group raised its forecast for global oil demand this year by 190,000 barrels a day, to an average of 96.46 million a day, implying growth of about 6 million a day from 2020. While it lowered the outlook for this quarter by 520,000 barrels a day, this was offset by a commensurate boost to the fourth quarter.

It’s a more upbeat assessment than OPEC and its partners made just before their last meeting, when they downgraded demand projections.

Summer Driving

A revival in fuel consumption in the coming months, as summer driving demand kicks in and the vaccine roll-out spurs economic activity, means the cartel’s extra barrels should be absorbed.

Demand for OPEC’s crude will average 26.85 million barrels a day in the second quarter and 28.33 million barrels a day in the third, according to the report. The group pumped about 25 million barrels a day last month, so stockpiles should still decline even as OPEC+ phases in the return of just over 2 million barrels a day.

More than half of the increase will be provided by OPEC’s de facto leader, Saudi Arabia, which has been making extra cutbacks to help clear the lingering glut. The kingdom pumped about 8 million barrels a day in March, according to the report.

OPEC’s analysis illustrates just how its efforts to drain the global oil surplus have paid off, with inventories in developed economies down to just 57 million barrels above their 2015-2019 average as of February.

Yet it also indicated that, despite the signs of recovery, the organization isn’t inclined to speed up the revival of supplies. Even if OPEC+ adds 2 million barrels a day as scheduled by the end of July, it will still be keeping about 5.8 million offline -- almost 6% of the global total.

“The large uncertainty surrounding the fragile recovery from the unprecedented impact of Covid-19 continues to require vigilant monitoring of market developments, despite the wide-ranging stimulus measures and early signs of a return to normalcy,” it said.

©2021 Bloomberg L.P.