OPEC+ advisory committee expects group to stay the course with 400,000 b/d December hike

OPEC and its allies appear set to reaffirm plans to increase crude production by 400,000 b/d in December after an advisory committee saw no major changes in the market's supply/demand outlook, despite calls from major consumers to further boost output to tame three-year high oil prices.

The OPEC+ Joint Technical Committee met on Oct. 28 in preparation for the Nov. 4 meeting of the coalition's ministers to review the course of action for December, where output is expected to increase by 400,000 b/d, according to a July agreement.

The coalition, which has been raising output by 400,000 b/d per month since August, is under pressure from several consuming countries, including the US, Japan and India, to further ramp up its output to temper oil prices that have surged amid a global gas crisis, outages and a lack of oil investments due to climate change pledges.

"We had a smooth meeting where no major changes in demand and supply picture [came up]," one delegate told S&P Global Platts.

"[There was a] slight adjustment of supply due to outages in Mexico and Ida hurricane."

Nearly 95% of US Gulf oil and gas production was shut in near the end of August as the Category 4 Hurricane Ida made landfall in Louisiana.

S&P Global Platts Analytics forecasts that total annual disruption from Ida could top 97,000 b/d by year-end.

Outages such as Hurricane Ida and a global gas shortage prompting switching to oil-fired power has caused crude prices to soar, raising gasoline prices at US gas stations to a level that could dent US President Joe Biden's popularity.

Blaming OPEC

Biden has blamed the current high oil prices on OPEC withholding supply but ultimately dismissed the idea that he might try to persuade the producer group to increase production.

However, OPEC kingpin Saudi Arabia has rejected requests from key oil consuming countries for more supplies, with energy minister Prince Abdulaziz bin Salman saying Oct. 20 that he saw no evidence of a crude shortage despite fears of a new surge in prices in the coming months.

Dated Brent prices have more than doubled in the last year, with Platts assessing the benchmark at $84.475/b on Oct. 27.

OPEC+ officials at the JTC discussed an "alternative, one more bearish" demand scenario, according to a second delegate.

"It was an adjusted monthly oil market report scenario with 5.7 [million b/d] demand growth for 2021," the delegate told Platts.

World oil demand is expected to increase by 5.8 million b/d to 96.60 million b/d in 2021, revised down from 5.96 million b/d growth seen last month, "mainly driven by lower-than-expected actual data for the first three quarters of this year," OPEC said Oct. 13 in its closely-watched monthly oil market report.

Lower supplies

Barring a substantial increase in OPEC crude production in the coming months, the oil market will tighten considerably, the organization said, citing the lingering impacts of Hurricane Ida on US oil production, along with field maintenance and outages in Kazakhstan and Canada.

OPEC lowered its estimate of oil supplies from outside the bloc in 2021 by 210,000 b/d from its previous forecast to 63.64 million b/d.

Global oil demand was lowered by a lesser amount to 96.60 million b/d.

As a result, the call on OPEC's own crude production for 2021 was revised up to 27.80 million b/d, including 29.36 million b/d in the fourth quarter.

That is significantly above OPEC's output of 27.33 mil b/d in September, according to secondary sources used by the organization to track output.

Platts Analytics has been warning that, by mid-2022, OPEC+ spare capacity "will be insufficient to offset a no Iran deal." Without the 1.5 million b/d in additional Iranian crude hitting the market and with US supply growth still likely constrained somewhat by capital discipline, the oil market could be vulnerable to further disruptions, Platts Analytics said.

Demand erosion

OPEC's cautious approach to boosting its output is supported by forecasts from the International Energy Agency.

An acute shortage in natural gas and coal supplies triggering a massive switch to oil products, along with improving mobility trends, has boosted the near-term global oil demand outlook, but supply could catch up early 2022 should OPEC+ stick to its plan to bring more crude back online, the IEA said Oct. 14.

In its latest monthly oil market report, the IEA raised its global oil demand estimate for 2021 by 170,000 b/d to 96.3 million b/d and for 2022 by 210,000 b/d to post-COVID-19 levels of 99.6 million b/d.

While the Paris-based agency raised oil demand growth forecasts to 5.5 million b/d for this year and to 3.3 million b/d for 2022, it warned that higher oil prices, if sustained, could lead to demand erosion.