Opec foresees larger surplus as higher oil prices cool demand

London/Moscow — The oil market is likely to see a bigger-than-expected surplus this year, Opec+ said in a report on Wednesday, as rising energy costs and tighter monetary policy exert downward pressure on oil demand.

The report comes days ahead of an Opec+ policy meeting on September 5 and more than a week after Opec leader Saudi Arabia said the group may cut oil output.

The joint technical committee, which met on Wednesday, advises the oil cartel and allies led by Russia, collectively known as the Opec+ group of oil producing nations, on market fundamentals.

Opec+ is ready to cut output amid volatility in the oil futures market, driven by thin liquidity and a disconnect with physical markets, Saudi energy minister Prince Abdulaziz bin Salman said last week.

Five sources said discussions are yet to begin on production policy beyond September and whether the producer group would cut output.

Oil prices have been extremely volatile in recent weeks. While Abdulaziz’s comments helped propel prices to a one-month high above $105 a barrel on Monday, Brent crude on Wednesday traded $10 a barrel below those levels, on expectations for lower demand.

At its latest meeting, Opec+ agreed to raise production targets by 100,000 barrels per day for September, having unwound record cuts of about 10-million barrels per day that it agreed in 2020 to help counter the impact of the pandemic.

The joint technical committee report said oil demand, which it sees growing 3.1-million barrels per day this year, faces major uncertainties, particularly from rising inflation and tightening monetary policy that are eating into consumers’ budgets.

“Rising energy prices pose another risk going forward,” the report said. “The latter may lead to a more significant reduction in consumption than currently anticipated, especially towards the end of the year.”

The joint technical committee sees the oil market surplus this year reaching 900,000 barrels per day, up 100,000 from its previous forecast, a report by the committee showed.

Under its base case scenario, the committee sees the oil market in a surplus of 3.1-million barrels per day in September, falling to 600,000 in October before rising to 1.4-million in November.

Opec+ also expects a surplus of 900,000 barrels per day in 2023 under its base scenario, the committee’s report showed.

Reuters