Oil markets will witness significant upside price pressure in the second half of the year despite downside risks, including a potential failure to stimulate the Chinese economy and lower-than-expected discipline by the OPEC+ producers in adhering to output cutbacks, according to consultancy firm Rystad Energy on Monday.
According to Rystad Energy Senior Vice President Jorge Leon, an oil market deficit of 2.4 million barrels per day (bpd) is expected for the rest of the year.
Under normal circumstances, such a tight market scenario should increase prices. However, Leon said a combination of non-fundamental factors, lagging demand, and stronger-than-expected supply are at play in suppressing prices.
-Demand still recovering
Rystad data reveals that Chinese crude imports have remained very strong, having reached 12.3 million bpd in March, the highest level in three years.
In May, the import volume of the world’s largest oil importer reached 11.4 million bpd, 5% above the level seen in May last year and 18% above that in May 2021.
'These strong import numbers suggest oil demand remains solid; however, the caveat is that, at the same time, crude storage has been increasing in the last few months, which implies that demand is potentially lagging,' Leon said.
However, the biggest demand-side impediments are falling road traffic data in China, Europe, and North America, as well as a struggling airline sector.
'Germany, the UK and the US have also seen road transport decline, but it is too early to tell whether this is a structural shift or not,' Leon said, adding that he expects the aviation sector to perform strongly in the second half of the year.
He underlined that much will depend on China’s economic performance in the second half of the year, the effectiveness of the country’s recently announced stimulus measures, and the ability of the US and Europe to avoid an economic slowdown amid interest rate hikes.
-Mismatch between promised and actual output cuts of OPEC+
Leon said the mismatch between the promised output cuts of OPEC+ oil-producing countries and the actual production levels is also putting downward pressure on prices.
Earlier in June, the OPEC+ group agreed to not only maintain this year's output limits but further extend them until December 2024.
This came following its decision in April to implement a collective output cut of around 1.6 million bpd on top of its cut of around 2 million bpd in October of last year.
However, according to Rystad data, output from these OPEC+ countries did drop last month, although slightly less than was forecast as production declined by less than 900,000 bpd, much less than the promised cut of 1.15 million bpd.
'In the case of Russia, there is a gap between actual and promised cuts in May – out of the announced cut of 500,000 bpd, production has declined but only by 400,000 bpd,' Leon said.
The mismatch is also seen between Russia's production decline and increased seaborne crude exports.
Despite the announced cuts, Leon said exports have risen from 3.3 million bpd in February to around 3.5 million bpd in recent weeks.
'We believe that, at some point in the coming weeks, market fundamentals will drive the oil market. Upside price pressure will materialize soon,' he said.
By Sibel Morrow
Anadolu Agency
energy@aa.com.tr