Following the oil production cuts announced earlier this month by OPEC countries, one would think that the price of crude should drastically change its downward trend. Nevertheless, it is important to examine the available data to assess whether we are currently facing an expected shortage or oversupply of oil on the market. Analysis of OPEC's monthly oil market report allows us to obtain information on crude production, demand, prices and stocks, as well as to analyse trends in economies around the world. This data is compiled on the basis of contracts concluded with suppliers in different regions of the world and takes into account the macroeconomic situation. What conclusions can we draw from the latest reading?
Globally growing oil demand
Despite the expected crisis, global oil demand is expected to increase by 2.4% compared to the previous year. The only region where demand is expected to decline (by 0.5%) is Europe. In the United States, demand is expected to remain at its current level.
The largest increase in demand would be in China (up 5.7% y/y), followed by the Indian economy (up 4.7% y/y). The podium is rounded off by the Middle East region (up 4.6% y/y).
Compared to previous OPEC data, there is a slight increase in expectations for annual oil demand. This could mean that the economic slowdown mightend sooner than most analysts had forecast. Such a scenario could prove beneficial for Asian stock indices, including the Hang Seng (HK50).
Source: Conotoxia MT5, HK50, Daily
Globally slowing oil supply
OPEC analysts forecast that the two quarters of this year with a growth rate of 2.7% would be followed by a decline to 0.3% in Q3 and 0.5% in Q4. In turn, full-year oil production growth could reach 1.4% (y/y). The forecast for a decline in Russian production in the second half of the year seems interesting: by 11.3% in Q3 and by 12.5% in Q4 (year-on-year). Does this mean that economic problems can be expected to increase in Russia, where raw material sales are a major source of income? It should be noted here that Russia accounts for as much as 10% of global demand for this raw material.
Will we face oil shortages?
In Q1 and Q2 of this year, there was an oversupply of production relative to demand, reaching an average of 0.47 million barrels per day (b/d). This may have been one of the factors behind the oil price reductions. This trend would begin to reverse with the start of the second half of the year. A larger-than-expected increase in demand coupled with a decline in production could lead to a crude shortage of 1.4 million b/d, which could be a strong driver for a change in the oil price trend.
Source: OPEC Data
Source: Conotoxia MT5, XTIUSD, Daily
Grzegorz Dróżdż, CAI, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
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