Although the United States and Russia lead the world in crude oil production, several countries depend up on crude oil imports from the GCC led by Saudi Arabia. World crude oil production averaged 77 million barrels a day in 2021.
Oil production has increased significantly in the last decade despite growth of alternative energy and an increase in mass public transport such as metro trains and Bus Rapid Transit in developing countries. The good news for oil producers is the upward trend for oil demand will continue in 2023 according to an oil producers’ forum.
The Organization of Petroleum Exporting Countries’ [OPEC], in its latest monthly report released this Tuesday, forecasts an increase in oil demand y-o-y by 2.7 million barrels a day. The report expects oil supply from non-OPEC countries to rise 1.7mbpd. To meet this increased demand in 2023, OPEC members [they produce 37 per cent of total world oil] would have to increase to 30.1mbpd, or 1.38mb more than it produced this June.
Although these figures are estimates of the probable demand six months away, recent conflicts, geopolitical and catastrophic events remind us the world remains fragile and could implode any time.
Producers and consumers know well how the global slowdown and Covid-19 dropped demand and stopped routine life for over a year. Doubt, confusion, fear, tens of thousands of deaths and mourning followed. After two years and mass vaccinations Covid cases have dropped all over, though fear of new variants persists.
Amid all these events, demand for oil has risen over the last two quarters. Benchmark ICE Brent crude oil price [$97.20] reaffirm this. Asia Pacific continues to lead the world in largest demand for oil. Despite the disruption caused by the pandemic, and the impact of lockdowns on manufacturing, agriculture and movement of commercial goods, oil demand continues to rise in Asia, particularly China and India.
Spot and futures oil market continues to grow. Futures Industry Association (FIA) says, “The total number of futures and options traded on exchanges in Asia Pacific soared 51.6 per cent year-on-year in 2021, the largest increase recorded for any region.”
Crude oil spot prices rose in June, extending the previous month’s increase. Higher futures prices and strong physical crude market fundamentals drove the increase, amid higher crude demand from refiners and several supply disruptions.
The OPEC Reference Basket rose $3.85, or 3.4 per cent, to settle at $117.72/b. The ICE Brent front month increased by $5.54, or 4.9 per cent, in June to average $117.50/b and NYMEX WTI rose by $5.08, or 4.6 per cent, to average $114.34/b. The Brent/WTI futures spread widened by 46¢ to an average of $3.16/b.
The market of all three major crude benchmarks – ICE Brent, NYMEX WTI and DME Oman – strengthened further in June and prompt time spreads moved into deeper backwardation. Hedge funds and other money managers cut net long positions by nearly 11 per cent in the two major futures contracts.
Fossil fuel demand touched 7.39 per cent higher in 2021 compared to 2020. In the same period demand rose 4.69 per cent in Europe, the OPEC report says. This news comes a week after the sad death of OPEC’s Secretary General Dr Mohammad Sanusi Barkido on July 5. The 63-year-old Nigerian politician was “a giant of the oil industry”, fellow OPEC members said in their tributes to him.
Dr Barkido led the oil group during a difficult period from 2016. His term coincided with the global slowdown, pandemic, the addition of OPEC+ alliance with Russia and other non-OPEC countries and the loss of two members Qatar and Ecuador. Oil industry commentators credit Dr Barkido for bringing unity and focus among OPEC members to achieve stability in global oil markets.
The OPEC report expects demand in China to remain robust this year, predicting an increase in consumption of 0.66 million barrels per day (mb/d) in 2022 on the back of steady economic growth, and increased demand from the transport and industrial sectors. Other Asian countries, excluding India, are not far behind, with OPEC documenting a 0.55 mb/d increase in demand in its February report, representing a jump of just over 6 per cent.
The key points of report augur well for the GCC and show global growth, but it is just a forecast. Let us wait and watch how world events unfold over the next six months.
[Sudeep Sonawane, an India-based journalist, has worked in five countries in the Middle East and Asia. Email: [sudeep.sonawane@gmail.com]
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