Data released by the Organization of the Petroleum Exporting Countries (OPEC) reveals that the recent oil production cuts by the Kingdom of Saudi Arabia will lead to a significant supply shortage in global markets next month.
Even before the kingdom announced its surprising new measures just over a week ago, OPEC was expecting global stocks to run out rapidly during the second half of the year as a result of the recovery in fuel demand after the end of the Corona epidemic.
As a result of reducing oil production by one million barrels per day by Riyadh next July - and perhaps for a longer period - the supply shortage will exacerbate. According to OPEC's report issued on Tuesday, world consumption will exceed supply by approximately 2.7 million barrels per day next month.
If the kingdom decided to extend production cuts for the entire third quarter, it would be the largest deficit since 2021.
Prices fell
Despite the expected tight supply in the markets, crude oil traders have so far responded indifferently to the new cuts announced by the Saudi Ministry of Energy led by Prince Abdulaziz bin Salman on June 4. Brent crude futures have fallen 4% to around $73 a barrel since the announcement, as focus grows on mounting concerns about lackluster demand in China.
Oil declined after demand concerns outweighed Saudi Arabia's production cut
The United States and other consuming countries may welcome lower oil prices, after criticizing OPEC and its allies for increasing inflation as a result of restricted oil supplies. But that could create headaches for producers such as Saudi Arabia, which the International Monetary Fund believes needs oil prices above $80 to cover government spending.
The 13 OPEC members cut their supplies last month by 464,000 barrels per day, bringing the total to more than 28 million barrels per day, as they applied the cuts announced last April, according to the report. This is far less than the 29.9 million barrels per day that the organization estimates would be required during the third quarter of the year, even before the start of the new Saudi production cuts.
Once Riyadh activates the additional reduction (one million barrels per day) next July, the shortage will worsen to approximately 2.7 million barrels per day. Regarding the possibility of continuing the reduction for subsequent months, Prince Abdulaziz stated that he would keep the markets in a state of anticipation.
global demand
The organization's expectations depend on a huge increase in global demand during the next quarter, by about 1.2 million barrels per day. For the whole of 2023, the OPEC Secretariat in Vienna expects consumption to increase by 2.3 million barrels per day, to an average of 101.9 million barrels per day.
The International Energy Agency, which advises consuming countries, is due to release its latest estimates of global supply and demand on Wednesday, including the first detailed assessment for 2024.
