According to Gibson Shipbrokers’ Tanker Market Report, oil markets once again are carefully watching for any comments from OPEC+ officials, with speculation building what the group will decide during their upcoming meeting on June 2nd.
As Gibson Shipbrokers notes, the importance of OPEC+ for the crude tanker market should not be understated, with all member states accounting for 41.3 bpd or 41% of global supply in April 2024. OPEC+ refers to the alliance between the Organization of the Petroleum Exporting Countries (OPEC) and a group of non-OPEC oil-producing countries. The “+” symbolizes the inclusion of these non-OPEC nations in cooperation with OPEC. The primary aim of this alliance is to manage oil production levels in order to stabilize oil prices and maintain market balance.
OPEC+ emerged in recent years in response to evolving market dynamics and the increasing influence of non-OPEC oil-producing countries on global oil markets. The alliance was formed to enhance cooperation between OPEC and non-OPEC nations in managing oil production levels.
According to OPEC’s monthly forecast, global oil demand is projected to grow by 2.2 mbd this year. The analysts attribute the increase to robust demand growth in non-OECD countries, where consumption is projected to rise by 1.98 mbd, Gibson notes.
The lion’s share of demand gain is coming from China, with an annual increase at 0.71 mbd. Strong growth is also seen in India, other non-OECD Asia, Middle East and Latin America. Assuming OPEC’s demand projections materialize, member states need to boost their production in order to meet the expected level of demand.
However, not many oil analysts are as bullish about growth prospects for oil demand. For example, the IEA’s demand prediction for this year is much lower, at 1.1 mbd, amounting to half of the OPEC’s level. The agency believes that post-Covid surge in demand led to over 2 mbd growth in consumption both in 2022 and 2023, but demand will grow at a slower pace this year as post-Covid boost has run its course, Gibson highlights.
Total OECD demand is expected to dip by 140 kbd, almost entirely due to declining oil demand in Europe. According to the IEA, the industrial downturn and a mild winter has undermined gasoil demand in all three OECD regions during Q1 2024, with deliveries down by 330 kbd YoY, Gibson supplies. Non-OECD demand is expected to increase by 1.2 mbd, with China accounting for over 40% of total non-OECD growth.
On the supply side, non-OPEC+ supply is expected to rise by 1.4 mbd in 2024, according to the IEA. According to Gibson, although this is comfortably above the agency’s demand predictions, OPEC+ production will fall by 0.84 mbd, assuming voluntary cuts are maintained through the year.
The analysis suggests a deficit, as total global oil supply will grow only by 0.58 mbd, just over half of the projected demand level. With this in mind, there could be upward pressure on oil prices, offering an incentive for OPEC+ to ease production cuts, Gibson notes.
However, the reality appears different. Brent prices are trading around $81-83/bbl, after averaging $89/bbl in April as concerns over geopolitical tensions in the Middle East ease. The downward trend in oil prices suggests a current oversupply, and the faltering demand growth supports this notion further. As such, the prevailing market fundamentals may deter OPEC+ from loosening their existing production cuts too soon.
