Opec-Plus Projections Show Hefty 2022 Surplus

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Alexey Vitvitsky/Sputnik via AP

Global oil markets will remain tight until the end of this year but stocks will start surpassing their 2015-19 average in 2022 and reach alarming levels by the end of that year, according to data prepared by an Opec-plus technical committee. The data -- discussed by the alliance's Joint Technical Committee (JTC) on Tuesday -- will be presented to Opec-plus ministers at a video conference on Wednesday. The near-term outlook supports the alliance's July decision to increase production by a total of 2 million barrels per day over the last five months of this year. But it also shows that Opec-plus will need to tread carefully next year when it plans to phase out all of its remaining production cuts by September. Return to Surplus The JTC examined two scenarios, both of which reflect decisions taken by Opec-plus ministers at their last meeting in July (IOD Jul.19'21). Both scenarios also assume that Iran, Libya and Venezuela continue to produce at estimated July 2021 levels for the rest of 2021 and during 2022. Those three Opec member countries are exempt from the Opec-plus production cuts. The JTC's base-case scenario assumes growth in global demand of 6 million b/d in 2021 and 3.3 million b/d in 2022. It shows OECD commercial oil stocks running 74 million barrels below their five-year average for 2015-19 at the end of the third quarter of 2021 and 56 million bbl below the five-year average at the end of the fourth quarter. However, in 2022, the base-case scenario shows OECD commercial stocks exceeding the 2015-19 average at the end of each quarter to finish the year 264 million bbl above the five-year average. Under the alternative scenario -- which assumes slower demand growth -- OECD commercial stocks are estimated at 34 million bbl below the five-year OECD average by the end of the third quarter of 2021, but flipping to 100 million barrels above the five-year average by the end of the fourth quarter. The alternative scenario shows OECD commercial stocks continuing to rise above the 2015-19 OECD average in 2022 to end the year at a massive 679 million bbl above the average. A slower demand growth trajectory seems quite plausible, given uncertainty around the impact of new Covid-19 variants on public health and economic activity (IOD Aug.12'21). Decision Rests With Ministers Opec-plus delegates told Energy Intelligence that for the time being, the available data would support a decision by the ministers to sign off on a scheduled production increase of 400,000 b/d in October. Implementation of the plan adopted in July has been "so far, very smooth," said one delegate. However, it is up to the ministers to make a final decision on Wednesday, and they have defied expectations several times in the past (IOD Aug.30'21). The July agreement envisages rolling back the production cuts in monthly increments of 400,000 b/d to around September 2022 -- "subject to market conditions" -- at which point all members would return to their "baseline" production. Opec-plus started to implement production cuts of 9.7 million b/d in May of last year to offset the sharp decline in oil demand triggered by the Covid-19 pandemic. The current schedule for reversing the cuts is set to lower them to around 5 million b/d in September. Amena Bakr and Oliver Klaus, Dubai

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