National oil stocks are gaining ground as production increases; OPEC-Plus weighs the exit line

U.S. crude inventories rose last week as producers boosted supply and demand only increased due to high fuel prices that kept consumption in check, albeit at low levels. solid. This is the second consecutive weekly increase in inventories.

The United States Energy Information Administration (EIA) said on Wednesday that oil inventories for the week ended October 29, excluding those in the Strategic Oil Reserve, increased by 3.3 million barrels. compared to the previous week.

Production last week rose to 11.5 million b / d from 11.3 million b / d the week before, the EIA said in its weekly State of Oil report. Demand, meanwhile, climbed 1% week / week, driven higher by increased consumption of jet fuels. However, demand for gasoline has only increased, with pump prices hovering near 2021 highs, although consumption has remained well above 2020 levels.

While the weekly increase in demand was modest, consumption of petroleum-based fuels proved robust through most of 2021, as the United States and the economies of Europe and parts of the Asia are rebounding from the 2020 slowdown imposed by the coronavirus pandemic.

Over the past four weeks, total U.S. oil demand has averaged 20.4 million barrels per day, up 8% from the same period last year. During this period, gasoline demand averaged 9.4 million b / d, up 12%, while jet fuel consumption jumped 45% to 1.5 million b / d .

At the same time, producers in the United States and around the world have only been increasing their production levels cautiously this year. This put upward pressure on oil prices which by extension were passed on to consumers. Brent and West Texas Intermediate (WTI) crude prices have risen nearly 60% this year.

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Global supply shortages of natural gas and coal have also increased demand for oil as an alternative source of heat and electricity in some parts of the world, exacerbating crude supply problems.

In a report released this week, analysts at Bank of America (BofA) raised their Brent and WTI price forecasts for next year to $ 85 / bbl and $ 75, respectively, from $ 75 and $ 71. Analysts expect global demand to turn out to be strong in the first half of 2022 and have said Brent prices could peak next year at $ 120.

As US demand led the charge, “structural rigidities in oil demand and supply are emerging” around the world, and it could take several months for producers to balance supply and demand, the researchers said. BofA analysts.

In the United States, at 434.1 million barrels, oil inventories are about 6% below the five-year average. Consistent declines this year at Cushing Hub in Oklahoma have kept pressure on US stocks. The Cushing hub is essential as it is the delivery point of the WTI futures contract.

Will OPEC-Plus increase production?

The Organization of the Petroleum Exporting Countries and its allies, aka OPEC-plus, are due to meet on Thursday to decide whether or not to extend a program to revive supplies that the cartel had previously cut amid the demand crisis in the United States. ‘last year.

OPEC-plus agreed in July to increase production by 400,000 bpd per month. It kicked off this strategy in August with plans to continue at this rate until it rolls back all cuts made amid the pandemic in 2020. The cartel has cut production by 9.7 million bpd Last year. Nearly 6 million barrels a day went offline when Saudi Arabia-led OPEC and its Russian-led partners last met in early October.

OPEC said last month it expected global oil consumption to increase by 5.8 million barrels per day in 2021 and an additional 4.2 million barrels per day next year, reaching an average of around 100 million barrels per day in 2022. That would put demand at the same level as in 2019. levels, before the pandemic.

Analysts generally expect the cartel to continue at the rate of 400,000 bpd. However, several noted that US President Biden and his administration have publicly called on OPEC-plus members in recent weeks to further increase their supplies to quench the global thirst for oil and ease pressure on energy prices. that contribute to broader inflation concerns. Other major countries, including China, have pressured OPEC-plus to further increase production.

“External flex on OPEC-plus is increasing, particularly from the United States,” said Louise Dickson, analyst at Rystad Energy. Oil markets, she said, were waiting Wednesday in anticipation of OPEC-plus’s next move, bracing for possible surprises due to mounting pressure.

That said, OPEC member Kuwait this week released a statement saying the cartel is expected to maintain its 400,000 bpd plan, saying the pace will balance the markets steadily through the remainder of this year and into the future. early next year. Several other members, including Iraq and Algeria, have issued similar statements in recent days.

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Felix J. Dixon

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