New OPEC+ Cuts Point to Crude and Condensate Supply Deficits Through 2021

A Rystad Energy (Oslo, Norway) analysis on June 8, confirms the forced oil production shutdowns and the extension of the generous OPEC+ voluntary cuts into July will not only balance the COVID-19-hit global crude and condensate demand, but are also deep enough to create a monthly deficit starting from June 2020 and continuing uninterrupted until at least the end of next year.

The oversupply, which pushed WTI oil prices into the negative range earlier this year, is now a thing of the past—as long as OPEC+ compliance remains strong and the oil demand recovery trajectory isn’t changed radically. It appears that May was the last surplus month, when crude and condensate production exceeded demand by about 6.1 MMbbld.

June is now already set for a global production deficit of about 1.5 MMbbld. The imbalance is forecast to reach 4.6 MMbbld in July, 4.2 MMbbld in August, and, after being reduced a little during the remainder of 2020, peak at 5.2 MMbbld in January 2021. Although the shortfall is projected to ease after that, Rystad Energy foresees that monthly deficits will remain throughout next year.

“We believe OPEC+ is attempting to create a mini-bull-cycle by quickly tightening the prompt market, helping depressed prices, and creating a supply environment that will facilitate a rapid relief of oil storages, as deficits will trigger large stock draws,” says Rystad Energy’s head of oil markets Bjørnar Tonhaugen.

The energy consultancy estimates that global crude and condensate production will stay below 80 MMbbld for all the remainder of 2020. Output will likely reach 71.4 MMbbld in June and grow monthly to a high of 78.4 MMbbld in December.

Demand, on the other hand, is set to reach 72.9 MMbbld already in June 2020 and exceed 80 MMbbld from September onwards, reaching an annual monthly high of 82.3 MMbbld in December.

“However, if the oil price continues its steady ascension, this will spur reactivation of parts of the curtailed U.S. oil production. Also, if frac crews end their holidays early, U.S. volumes may be coming back more quickly than OPEC+ expects, bridging part of the deficit,” adds Tonhaugen.

SOURCE: The Weekly Propane Newsletter, June 11, 2020. Weekly Propane Newsletter subscribers receive all the latest posted and spot prices from major terminals and refineries around the U.S. delivered to inboxes every week. Receive a center spread of posted prices with hundreds of postings updated each week, along with market analysis, insightful commentary, and much more not found elsewhere.