OPEC+ Sticks With Original Plan to Add Output Despite Economic Uncertainty. US Inventory Fell Sharply

The OPEC+ will continue to increase oil output by +0.4M bpd in October. The decisions was made swiftly and came in line with the alliance’s plan to gradually bring back the output reduced (9.7M bpd) amidst the outbreak of the pandemic last year. Although the alliance has projected that the oil market would be in deficit in coming month, justifying more output, we are concerned that the move would lead to weakness in oil prices, given global economic uncertainty.

The oil producers remained confident that the market would be able to absorb the increase in output. As noted in the joint statement, “while the effects of the COVID-19 pandemic continue to cast some uncertainty, market fundamentals have strengthened and OECD stocks continue to fall as the recovery accelerates”. Their internal forecasts revealed that global oil demand should far exceed supply through the rest of the year, by +1M bpd in September, +1.1M bpd in October,+0.8M bpd in November and +0.4M bpd in December. Yet, the market would probably return to surplus next year. The OPEC+ revised higher its oil demand growth forecast to 4.2M bpd for 2022, up from the previous 3.3M bpd, signaling that the market would be in excess of oil by 1.6M bpd.

Sharp Decline in US Crude Oil Inventory Last Week

The report from the US Energy Information Administration (EIA) shows that total crude oil and petroleum products (ex. SPR) stocks slumped -13.62 mmb to 1243.82 mmb in the week ended August 27. Crude oil inventory declined for most in 7 weeks, down -7.17 mmb (consensus: -3.09 mmb) to 425.4 mmb. Stockpile in PADD 3 (Gulf Coast) plunged -8.97 mmb during the week. Cushing stock gained +0.84 mmb to 34.5 mmb. Utilization rate decreased -1.1 percentage points to 91.3% while crude production climbed +0.1 mmb higher to 11.35 bpd for the week. Crude oil importsincreased -0.18M bpd to 6.34M bpd in the week.Concerning refined oil product inventories, gasoline inventory added +1.29 mmb to 227.21 mmb although demand also gained +0.06% to 9.58M bpd. The market had anticipated a -1.63 mmb fall in stockpile. Production slipped -3.55% to 9.89M bpd while imports were up +5.76% to 1.14M bpd during the week. Distillate stockpile dropped -1.73 mmb to 136.73 mmb. The market had anticipated a -0.65 mmb decrease. Demand rose +6.97% to 4.39M bpd. Production dropped -3.57% to 4.81 mmb while imports rose +26.4% to 0.36M bpd during the week.

A day earlier, the industry-sponsored API estimated that crude oil inventory was down -4.05 mmb. Gasoline stockpile gained +2.71 mmb, while that for distillate dropped -1.96 mmb.