Global oil production exceeded demand by 1,490,000 barrels per day in June

Tuesday of the past week saw the release of OPEC's July Oil Market Report, which includes details on OPEC & global oil data for June, and hence it gives us a picture of the global oil supply & demand situation at a time when parts of China were ​still ​under restrictive Covid lockdowns, reducing demand, while at the same time the supply of Russian oil was curtailed by sanctions imposed by the West. In light of those offsetting circumstances, OPEC and aligned oil producers had again agreed to increase their output by 400,000* barrels per day for a eleventh consecutive month, ie the 11th such increase from the previously agreed to July 2021 level, which was in turn part of the fifth production quota policy reset that they've made over the past twenty-five months, all in response to the pandemic-related demand slowdown and subsequent irregular recovery.  Note that with the course and impact of the Ukraine war and the pandemic still uncertain, we consider the demand projections made in this report to be pretty speculative, and hence will not address any projections beyond the June estimates..

The first table from this month's report that we'll review is from the page numbered 47 of this month's report (pdf page 59), and it shows oil production in thousands of barrels per day for each of the current OPEC members over the recent years, quarters and months, as the column headings below indicate. Ffor all their official production measurements, OPEC has used an average of production estimates by six "secondary sources", namely the International Energy Agency (IEA), the oil-pricing agencies Platts and Argus, ‎the U.S. Energy Information Administration (EIA), the oil consultancy Cambridge Energy Research Associates (CERA) and the industry newsletter Petroleum Intelligence Weekly, as a means of impartially adjudicating whether their output quotas and production cuts are being met, to thereby avert any potential disputes that could arise if each member reported their own figures. Beginning with this report, the consultancy​ ​Wood Mackenzie and ​the ​research​ and intelligence​ ​firm ​Rystad Energy have been added to OPEC's secondary sources, and the IEA has been omitted.

As we can see on the bottom line of the above table, OPEC's oil output increased by 234,000 barrels per day to 28,716,000 barrels per day during June, up from their revised May production total that averaged 28,482,000 barrels per day. However, that May output figure was originally reported as 28,508,000 barrels per day, which therefore means that OPEC's May production was revised 26,000 barrels per day lower with this report, and hence OPEC's June production was, in effect, just 208,000 barrels per day higher than the previously reported OPEC production figure (for your reference, here is ​a copy of ​the table of the official May OPEC output figures as reported a month ago, before this month's revision)...

According to the agreement reached between OPEC and the other oil producers at their Ministerial Meeting on July 18th, 2021, the oil producers party to that agreement were to raise their output by a total of 400,000 barrels per day each month through December 2021, (later bumped up to 432,000 bpd) which was subsequently renewed at monthly meetings to include further 400,000+ barrel per day production increases in January, February, March, April, May, and June of 2022, and which would indicate an increase of 254,000 barrels per day each month from the OPEC members listed above, (now 286,000 barrels per day) with the rest of the current 432,000 barrel per day cartel increase to supplied by other producers. including Russia.  Hence, OPEC's increase of 234,000 barrels per day fell short of their expected increase. While the production decrease in Libya, which has been strangled by political infighting bordering on civil war, was obviously the major reason for the June shortfall. several other OPEC members continue to be short of what they were expected to produce, as we'll see in the next table..

The adjacent table was originally included as a downloadable attachment to the press release following the 28th OPEC and non-OPEC Ministerial Meeting on May 5th, 2022, which set OPEC's and other aligned oil producers' production quotas for June. Since war torn Libya and US sanctioned producers Iran and Venezuela are exempt from the production cuts imposed by the joint agreement that governs the output of the other OPEC producers, they are not shown in this list, and OPEC's quota ​excluding them ​is aggregated under the total listed for the 'OPEC 10', which you can see was expected to be at 25,864,000 barrels per day in June..Therefore, the 24,804,000 barrels those 10 OPEC members actually produced in June were 1,060,000 barrels per day short of what they were expected to produce during the month, with Nigeria and Angola accounting for ​a large part of this month's shortfall, while only the UAE was able to produce what was expected of them...

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* Recall that the original 2020 oil producer's agreement was to jointly cut their oil production by 23%, or by 9.7 million barrels per day, from an October 2018 baseline for just two months early in the pandemic, during May and June of 2020, but that initial 9.7 million bpd production cut agreement was extended to include July 2020 at a meeting between OPEC and other producers on June 6th, 2020.  Then, in a subsequent meeting in ​early ​July of that year, OPEC and the other oil producers agreed to ease their deep supply cuts by 2 million barrels per day to 7.7 million barrels per day for August 2020 and subsequent months, which thus became the agreement that governed OPEC's output for the rest of 2020.  The OPEC+ agreement for their January 2021 production, which was later extended to include February and March and then April's output, was to further ease their supply cuts by 500,000 barrels per day to a reduction of 7.2 million barrels per day from that original 2018 baseline.. Then, during a difficult meeting on April 1st of last year, OPEC and the other oil producers that are aligned with them agreed to incrementally adjust their oil production higher each month by a pre-set amount for each country over the following three months, thus extending their joint output cut agreement through July.  Production levels for August and the following months of last year were to be determined by a July 1st OPEC meeting, but that meeting was adjourned on July 2nd due to a dispute between the UAE and the Saudis over the 2018 reference production levels on which the cuts are based, and a subsequent attempt to restart that meeting on July 5th was called off.  So it wasn't until July 18th 2021 that a tentative compromise addressing August 2021's output quotas was worked out, allowing oil producers in aggregate to increase their production by 400,000 barrels per day in August, and again by that amount in each of the following months, and also to boost reference production levels for the UAE, the Saudis, Iraq and Kuwait beginning in April 2022, which is now reflected in the OPEC production quota table you see above, and which therefore makes the ​cartel's ​effective monthly production increase 432,000 barrels per day.  OPEC and other producers agreed to increase their production in January 2022 by a further 400,000 barrels per day in a meeting concluded on the 2nd of December, 2021, and reaffirmed their intention to continue that policy with another 400,000 barrel per day increase in February at a meeting concluded January 4, 2022, and then agreed to stick to that 400,000 bpd oil output increase in March, despite pressure from the US to raise output more quickly, at a meeting on February 2nd.  Then, at a meeting on March 2nd, OPEC and its oil-producing allies, which included Russia, decided to hold their production increase at that level thru April in an OPEC+ meeting that only lasted 13 minutes, their shortest meeting ever.  Then on March 31, OPEC and aligned producers agreed to reaffirm the decisions of the prior Ministerial meetings and again limit their production increase for May to the agreed 400,000 barrels per day, because "the current [oil market]volatility is not caused by fundamentals, but by ongoing geopolitical developments"...​following that, in an OPEC and non-OPEC Ministerial Meeting held on May 5th, they again "reaffirmed, reconfirmed, and reiterated" the decision of the July 18th 2021 meeting to increase production by 432,000 barrels per day in June of this year​, which is the agreement that covers this report's output​. However, in a meeting held June 2nd, they agreed to advance the 432,000 barrel per day increase they had already scheduled for September, with that increase to be split evenly between July and August...hence, the production increase now scheduled for those two months is 648,000 barrels per day​, which should bring each member's production back to the October 2018 baseline​.

Hence OPEC arrived at the production quotas for August 2021 through June of this year after repeatedly readjusting the original 23%, or 9.7 million barrel per day production cut from the October 2018 baseline that they first agreed to for May and June 2020, first to a 7.7 million barrel per day output reduction from the baseline for the remainder of 2020, then to a 7.2 million barrel per day production cut from the baseline for the first four months of this year, which was subsequently raised to an 8.2 million barrel per day oil output reduction after the Saudis unilaterally committed to cut their own production by a million barrels per day during the Covid surge of February, March, and then later during April of last year.  Under the agreement prior to the current one affecting this and recent months, OPEC's production cut in April 2021 was set at 4,564,000 barrels per day below the October 2018 baseline, which was lowered to a cut of 3,650,000 barrels per day from the baseline with the ​subsequent comprehensive agreement, which thus set the July​ production quota for the "OPEC 10" at 23,033,000 barrels per day, with war torn Libya and US sanctioned producers Iran and Venezuela exempt from the production cuts imposed by that agreement.  For OPEC and the other producers to increase their output by 400,000 barrels per day from that July 2021 level, each producer would be allowed to initially increase their production by just over 1% per month since that time.  For OPEC alone, that meant a 254,000 barrel per day increase for each month from July 2021 to April 2022, at which time the incremental 32,000 barrels per day adjustment they arrived at in July 2021 kicked in.  Adding together those monthly ​quota ​increases since last July, when the quota was at 23,033,000 barrels per day, is how they arrived at the 25,864,000 barrels per day quota for OPEC for ​June that you see on the table above.

The next graphic from this month's report that we'll look at shows us both OPEC's and worldwide oil production monthly on the same graph, over the period from July 2020 to June 2022, and it comes from page 48 (pdf page 60) of OPEC's July Oil Market Report.  On this graph, the cerulean blue bars represent OPEC's monthly oil production in millions of barrels per day as shown on the left scale, while the purple graph represents global oil production in millions of barrels per day, with the metrics for global output shown on the right scale....

After this month's 234,000 barrel per day increase in OPEC's production from their revised production of a month earlier, OPEC's preliminary estimate is that total global liquids production increased by a rounded 1,320,000 barrels per day to average 99.82 million barrels per day in June, a reported increase which came after May's total global output figure was apparently revised down by 250,000 barrels per day from the 98.75 million barrels per day of global oil output that was estimated for May a month ago, as non-OPEC oil production rose by a rounded 1,100,000 barrels per day in June after that downward revision, as 700,000 barrels per day of production growth from the US and Russia was only partly offset by a decine totaling 300,000 barrels per day in the output of Norway and Kazakhstan.

After that 1.32 million barrel per day increase in June's global output, the 99.82 million barrels of oil per day that were produced globally during the month were 5.10 million barrels per day, or 5.4% more than the revised 94.72 million barrels of oil per day that were being produced globally in June a year ago, which was the second month after OPEC and their allied producers began their program of monthly production increases from the 7.2 million barrels per day production cut that had governed their ​output over the first four months of last year (see the July 2021 OPEC report (online pdf) for the originally reported June 2021 details).  With this month's increase in OPEC's output modest compared to the global increase, their June oil production of 28,716,000 barrels per day amounted to 28.8% of what was produced globally during the month, down from their revised 28.9% share of the global total in May.  OPEC's June 2021 production was reported at 26,043,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year produced 2,682,000 barrels per day, or 10.3% more barrels per day of oil this June than what they produced last June, when they accounted for 27.9% of global output...

With the increases in both OPECs and global oil output that we've seen in this report, the amount of oil being produced globally during the month was significantly more than the expected global demand, as this next table from the OPEC report will show us....

The above table came from page 25 of the July Oil Market Report (pdf page 37), and it shows regional and total oil demand estimates in millions of barrels per day for 2021 in the first column, and then OPEC's estimate of oil demand by region and globally quarterly over 2022 over the rest of the table.  On the "Total world" line in the third column, we've circled in blue the figure that's relevant for June, which is their estimate of global oil demand during the second quarter of 2022.  OPEC ​has ​estimated that during the 2nd quarter of this year, all oil consuming regions of the globe have been using an average of 98.33 million barrels of oil per day, which is an upward revision of 150,000 barrels per day from their estimate for 2nd quarter demand of a month ago (that revision is circled in green).  But as OPEC showed us in the oil supply section of this report and the summary supply graph above, OPEC and the rest of the world's oil producers were producing 99.82 million barrels per day during June, which would imply that there was a surplus of around 1,490,000 barrels per day of global oil production in June, when compared to the demand estimated for the month.

In addition to figuring June's global oil supply surplus that's evident in this report, the upward revision of 150,000 barrels per day to second quarter demand that's indicated in green above, combined with the 250,000 barrel per day downward revision to May's global oil supplies that's implied in this report, means that the 560,000 barrels per day global oil output surplus we had previously figured for May would now be revised to a surplus of just 160,000 barrels per day. In addition, the 710,000 barrels per day global oil output surplus we had previously figured for April, in light of the 150,000 barrels per day upward revision to second quarter demand, would now be revised to a surplus of 560,000 barrels per day...

Note that in green we have also circled an upward revision of 60,000 barrels per day to OPEC's previous estimates of first quarter demand.  For March, that means that the global oil output surplus of 230,000 barrels per day we had previously figured for March would be revised to a surplus of 170,000 barrels per day.. However, the upward revision to first quarter demand means that the 10,000 barrels per day global oil output surplus we had previously figured for February would now be revised to a shortage of 50,000 barrels per day, and that the global oil output shortage of 740,000 barrels per day we had previously figured for January would now be revised to a shortage of 800,000 barrels per day, in light of that 60,000 barrel per day upward revision to first quarter demand...

 

 

note: the above excerpt was from my weekly blog post on Focus on Fracking..

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