Opec+ seen extending oil supply cuts amid warning of glut in ’22

An oil tanker sits anchored off the Fos-Lavera oil hub near Marseille, France (file). The Opec+ panel, known as the Joint Technical Committee, said in a report it expected an overhang of crude by the end of 2022, based on several scenarios for supply and demand.

Opec+ is expected to discuss extending its deal on cutting oil supply beyond April 2022, two Opec+ sources said on Wednesday, after a panel set up by the group warned of “significant uncertainties” and the risk of an oil glut next year. The Organization of the Petroleum Exporting countries, Russia and its allies, a group known as Opec+, agreed to record output cuts of about 10mn barrels per day (bpd), starting from May 2020 and due to phase out by the end of April 2022. Opec+’s active supply management responded to collapsing demand as economies shut down to curb the spread of the coronavirus. As of July, supply cuts still place will stand at 5.8mn bpd. The Opec+ panel, known as the Joint Technical Committee, said in a report it expected an overhang of crude by the end of 2022, based on several scenarios for supply and demand. The report said the oil market would be in deficit in the short term but a glut was on the horizon once the Opec+ supply cuts ended. The position of Russia, which along with Saudi Arabia has been a driving force behind Opec+ policy, was not immediately clear, so a final decision on any extension might not be reached at Thursday’s Opec+ meeting, one of the sources said. Oil prices were trading above $75 a barrel on Wednesday, more than 40% higher than at the start of year. Under a base scenario, inventories in OECD industrialised economies would stand at 96mn barrels below the 2015-2019 average in the third quarter of 2021 and at 125mn barrels below that average in the fourth quarter, the panel report said. However, it said there would be a “significant increase” in inventories in 2022, lifting stocks to 181mn barrels above the five-year average by the end of next year, the report said. The base case adopts global oil demand growth assumptions and non-Opec supply growth from Opec’s June monthly report, with a preliminary forecast for 2022. The panel said it still forecast global oil demand growing by 6mn bpd in 2021 but said “significant uncertainties” affecting demand included a divergence in the global economic recovery, climbing sovereign debt, uneven vaccine rollouts and rising cases of the Delta coronavirus variant. Amrita Sen from consultancy Energy Aspect said Opec+ was “preferring to err on the side of caution” by forecasting a surplus in 2022, although she said they still expected demand to absorb Opec+ output and additional Iranian barrels next year. Opec watchers said the group could leave production unchanged when ministers meet on Thursday or decide to boost output, possibly by more than 1mn bpd or by a more modest 0.5mn bpd. Opec+ sources said no unanimous decision or recommendation emerged from panel’s consultations on Tuesday.