USOI - OPEC Update March 2023
2023-03-20 05:20:00 ET
Summary
- OPEC crude output was revised lower in January 2023 by 69 kb/d compared to last month’s report and December 2022 OPEC crude output was revised lower by 7 kb/d.
- Assuming the ratio of World C+C to total liquids has remained close to the level of Jan 2021 to Nov 2022 period, we can estimate that World C+C might be around 82.1 Mb/d in Feb 2023.
- It seems unlikely that OPEC returns to its previous peak unless Iran and Venezuela increase output, which also seems unlikely at present.
A guest post by D Coyne
The OPEC Monthly Oil Market Report ((MOMR)) for March 2023 was published recently. The last month reported in most of the OPEC charts that follow is February 2023 and output reported for OPEC nations is crude oil output in thousands of barrels per day (kb/d). In many of the OPEC charts that follow, the blue line is the monthly output and the red line is the centered twelve-month average ((CTMA)) output.
Figure 1
Figure 2
OPEC crude output was revised lower in January 2023 by 69 kb/d compared to last month’s report and December 2022 OPEC crude output was revised lower by 7 kb/d. When the World was at its centered twelve-month average peak for C+C output in August 2018, OPEC crude output was 31237 kb/d (as shown on the chart), February 2023 OPEC crude output was 2313 kb/d below that level. The centered twelve-month average ((CTMA)) peak for OPEC crude output is also shown in figure 1 (31837 kb/d) which is 2913 kb/d higher than February 2023.
In the chart below we have Russian C + C and OPEC crude oil output. The centered 12-month average ((CTMA)) of output for OPEC13 crude and Russian C+C was 42443 kb/d in August 2018 when World C+C output was at its centered 12-month average peak, output for Russia and OPEC was 2699 kb/d below the August 2018 CTMA at 39734 kb/d in February 2023. In the past 12 months, OPEC and Russian output have increased by 175 kb/d from 39559 kb/d in February 2022.
Figure 3
Based on OPEC estimates, World Oil Supply (all liquids) was 101.9 Mb/d in February 2023, 7.7 Mb/d higher than output in March 2021, OPEC crude oil output increased by 3.8 Mb/d over the same 23-month period. World C+C output was 76 Mb/d (EIA estimate) in February 2021, and over Jan 2021 to November 2022 period, World C+C was about 80.6% of the World total liquids output (based on EIA estimates). Assuming the ratio of World C+C to total liquids has remained close to the level of Jan 2021 to Nov 2022 period, we can estimate that World C+C might be around 82.1 Mb/d in Feb 2023. This suggests that World C+C may have increased by roughly 6 Mb/d over the past 23 months. This is about 200 kb/d higher than the EIA estimate for November 2022 (81.9 Mb/d).
Figure 5
The OPEC estimate for demand for OPEC crude in 2023 is forecast to be 29.26 Mb/d, about 160 kb/d lower than last month’s MOMR estimate. If OPEC can return to the 2022Q3 level of output (29.4 Mb/d) and its demand and supply estimates are accurate, then oil prices may remain subdued in 2023. I think their supply estimates for non-OPEC output may be too optimistic and expect oil prices will rise. If there is a severe recession in 2023 worldwide, oil prices may remain under $80/bo.
OECD oil stocks are at about 87 days of forward consumption, close to the low point since 2009. Visibility for World oil stock levels is not good which might be part of the reason for recent oil price volatility.
OPEC expects US tight oil will increase by 720 kb/d in 2023 compared to 2022 (annual average output for both years), with most of this coming from the Permian basin (610 kb/d). This is a downward revision from last month’s MOMR estimate for US tight oil by 30 kb/d for all of US tight oil and 10 kb/d for the Permian basin. My most recent model for US tight oil has the increase from 2022 to 2023 (annual average output for each year) at about 394 kb/d for all US tight oil, with about a 399 kb/d increase in the Permian basin.
A final note on comparing the top 6 OPEC producers in 2015 (Big 6 are Saudi Arabia, Iraq, UAE, Kuwait, Iran, and Venezuela) with the “Other 7” OPEC producers. The chart below has the Big 6 plotted on the right axis with the Other 7 plotted on the right axis. Notice that the scale from minimum to maximum is the same on both axes (that is the difference from the largest to the lowest number on each axis is 12000 kb/d), this allows the slopes to be visually compared more easily. The vertical scale on each of the following 4 figures is the same (maximum minus minimum is 12000 kb/d).
At first glance, it appears that OPEC output might continue to decline in the future as the net of both slopes is -83 kb/d per year over Jan 2005 to Feb 2023 period. Note the sharp decrease in the Big 6 line especially after 2018, before the pandemic began. A possible explanation is revealed by plotting the Big 4 which includes Saudi Arabia, Iraq, UAE, and Kuwait.
For the Big 4, the CTMA peak is the final point to the right and the trend from Jan 2005 to Feb 2023 is an annual increase of 301 kb/d. In 2018, the US imposed severe sanctions on both Iran and Venezuela and caused a severe downturn in crude oil output in both nations. This was in part a result of the Trump administration believing the Saudi America story which led to poor policy decisions. The chart that follows shows combined Iranian and Venezuelan output.
Venezuela plus Iran had been declining slowly for many years from 2005 to 2017 (most of this was Iran up to 2017), then a steep decline from 2018 to 2020 due to sanctions plus the pandemic, and now output has stabilized at about 3200 kb/d. Output is unlikely to deteriorate much further and is more likely to increase slightly over the next 5 to 10 years as sanctions may be gradually lifted (or nations may find ways around the sanctions). The main point is that the annual decline rate of 210 kb/d for Iran and Venezuela is likely to change to zero or become a slight increase in annual output. In addition, higher oil prices may lead to more development of OPEC resources in the Big 4 (or Big 6 with sanctions relief) which could lead to higher OPEC output. Even without higher rates of resource development, I would expect OPEC could raise output by at least 125 kb/d annually over the next 5 to 10 years.
If we consider OPEC 13 minus Iran and Venezuela as in figure 12, we see output increased at an average annual rate of 128 kb/d per year over Jan 2005 to Feb 2023 period, if that rate continues in the future and Iran and Venezuela simply maintain their Feb 2023 output, then OPEC minus Iran and Venezuela would return to the level of Jan 2019 (the CTMA peak of 26620 kb/d), OPEC 13 would be at 29891 kb/d. This would be 1946 kb/d below the all-time OPEC 13 CTMA peak. At the rate of increase shown on the chart, it would take 7.5 years for OPEC to reach that level. Note that the pandemic had a significant impact on the rate of increase, prior to the pandemic from Jan 2005 to Dec 2019, the rate of increase for OPEC minus Iran and Venezuela was about 248 kb/d per year. It seems unlikely that OPEC returns to its previous peak unless Iran and Venezuela increase output, which also seems unlikely at present. OPEC crude output may not breach 30,000 kb/d in the future unless OPEC accelerates the development of its oil resources.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
For further details see:
OPEC Update, March 2023