Spotlight shifts to oil demand as OPEC+ move clears the air on supplies
THE decision by OPEC and its allies to extend production cuts until June as well as the surprise decision by Russia of an extra round of reductions have largely laid out a clear near-term supply roadmap for global oil markets.

But a lukewarm market reaction to those decisions suggests that no fireworks are in store on the demand side. In addition, non-OPEC output might be more than enough to cover any incremental demand growth, which is largely expected to be modest.

Saudi Arabia, Iraq, the UAE and several other OPEC+ countries said March 3 they planned to maintain some 1.7 million b/d in output curbs through the end of June. The quotas were originally scheduled to expire at the end of March, but the alliance decided to keep a tighter grip on supplies for a while longer amid a hazy economic outlook.

Russia, on the other hand, said it would implement a new formula that would gradually convert its previous export cuts into crude production cuts over that span.

Moscow planned to reduce crude output by 350,000 b/d and cut exports by 121,000 b/d in April; drop production by 400,000 b/d and exports by 71,000 b/d in May; and reduce production by 471,000 b/d in June. This could increase the transparency of its compliance, which became more difficult to estimate since Russia invaded Ukraine and classified a substantial amount of data on its oil sector.

The extra Q2 2024 cut by Russia no doubt came as a bullish surprise to the oil market as it could potentially tighten the supply situation more than expected.

However, compliance to quotas within the OPEC+ alliance has been a cause of concern as it fell short in delivering on its cuts in January, according to estimates in a Platts OPEC+ survey by S&P Global. Crude production fell by only a collective 340,000 b/d, roughly half of what had been pledged.

Assuming continuous efforts by OPEC+ countries to manage their production and cuts, S&P Global expected Dated Brent to average $84/b in 2024, slightly higher than the $83/b seen in 2023, before moderating to $76/b in 2025. Actual daily prices are expected to swing widely around these levels.

Oil demand typically peaks during the Northern Hemisphere summer season, and improved fundamentals could allow the alliance to lift quotas and claw back market share ceded to the US, Brazil and other rival producers.

But the market is skeptical that will happen anytime soon. S&P Global expects OPEC+ members to keep their cuts in place through the entire year.

The non-OPEC+ impact

The extended cuts are expected to keep conditions fertile for rising output in the US, Brazil and other non-OPEC producers, such as Guyana. Rising output in the United States, where shale operators are expected to push production to a record high in 2024, have surprised many market watchers.

The International Energy Agency said earlier in February that with stronger-than-expected output from key American producers this year, it expected global oil supplies to average a record 103.8 million b/d in 2024, an upward revision of 250,000 b/d from the previous month's report.

Combined, the US, Brazil, Guyana, and Canada are forecast to add 1.4 million b/d of new oil production. Non-OPEC+ producers together are set to add 1.6 million b/d, according to the IEA.

With the tug-of-war for Middle Eastern crudes expected to continue due to the ongoing Russia-Ukraine war, many Asian buyers are already exploring alternate supplies from the US, Brazil, Canada and Guyana.

But rising freight costs and turbulence in some shipping routes pose challenges to regional inflows. The escalation in the Red Sea crisis is expected to increase bunker demand in Singapore until higher prices erode end-user demand in Asia, where price elasticity is higher.

S&P Global raised its forecast for total fuel oil and gasoil demand in Singapore by 73,000 b/d in the first quarter compared with a month ago. It expected fuel oil and gasoil demand in Singapore to grow 135,000 b/d year on year and 66,000 b/d quarter on quarter to average 1.08 million b/d in the first quarter.

Demand outlook

S&P Global forecast global GDP growth at 2.3% in 2024, with below average growth in the US and Europe. Apart from the 2020 pandemic, this might be the slowest global pace since the 2008-2009 financial crisis.

However, the Asian macroeconomic outlook remains stable on moderate recovery in China and resilient growth in India. As a result, S&P Global revised its regional oil demand higher for the first quarter on stronger-than-expected transport demand in China during the Lunar New Year holidays and stronger bunker demand in Singapore amid the Red Sea diversions.

Asia’s total liquids demand will likely grow 353,000 b/d on the quarter in Q1 2024 on the back of positive demand growth in mainland China and Southeast Asia. However, a seasonal lull will return in the second quarter when total regional liquids demand is set to contract by a total of 583,000 b/d in the majority of the markets in Asia, except mainland China.

Asian total liquids demand is expected to rebound 106,000 b/d quarter on quarter in Q3 before jumping 1.35 million b/d quarter on quarter in Q4 on improved transport and industrial activities, S&P Global forecasts.

Sambit Mohanty is Asia Energy Analyst at S&P Global Commodity Insights, leading coverage for Platts Oilgram News for the Asia-Pacific region. Sambit is based in Singapore and has more than 25 years of experience as a senior journalist and editor analyzing commodities and energy trends in the region. He holds a Master’s Degree in Applied Economics.
Energy,S&P Global,Red Sea,OPEC,Brent,Sambit Mohanty
THE decision by OPEC and its allies to extend production cuts until June as well as the surprise decision by Russia of an extra round of reductions have largely laid out a clear near-term supply roadmap for global oil markets.