Barreling Ahead (3Q23): Shades of Second-Half Deficits
A second-half supply shortfall seems all but certain, but the extent and durability of deficits is up for contest according to the divergent outlooks of the EIA and OPEC
This is the latest edition of my ongoing Barreling Ahead series in which I dig into the major supply and demand assumptions underpinning the oil market outlooks published by the main public-facing forecasting agencies.
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The latest forecasts from the EIA and OPEC confirm long-awaited second-half supply deficits, so now the question(s) shift towards the extent and duration of said deficit.
On demand, OPEC is relatively more optimistic than the EIA but, unexpectedly, on the back of the less-discussed non-OECD regions including Latin America, Asia ex-China/India, and the Middle East.
OPEC and the EIA are more closely aligned on the supply side of the ledger—with the critical exception of their near-term Russian production estimates, which OPEC expects to fall further through the year.
Most notably, both agencies predict a further slowdown of US production growth; the shale patch seems to pump ever-more barrels out of the ground but maybe the evidence really is mounting that supply growth is, indeed, being challenged
Nearly two months into the second half of 2023 and the much-anticipated supply deficits appear to have arrived. According to my July Global Oil Data Deck, global oil market balances tightened substantially in May to their most undersupplied level, on both a monthly and rolling-quarterly basis, since February 2022. Demand growth remains underpinned by China’s recovery, while supply continues to be restricted by ongoing, voluntary OPEC+ cuts.
This post will break down the updated outlooks of major oil market forecasting agencies as a part of my ongoing Barreling Ahead series (see previous updates: August 2022, January 2023). At a high level, the EIA and OPEC remain reasonably bullish for the coming months; however, OPEC’s outlook is, unsurprisingly, far more bullish. While the anticipated difference between total global supply and demand (i.e., market balance) is the biggest question on most minds, those global aggregates hide a number of nuanced differences between the two outlooks that will be interesting to follow as the year closes out.