Energy
The oil market came under further pressure yesterday. ICE Brent settled more than 7% lower on the day, which left it to close below US$100/bbl for the first time since April. This downward pressure has continued in early morning trading in Asia today. Lingering recession fears continue to hit the market, whilst the strength of the USD and flare-up in Covid cases in parts of China is certainly not helping. Brent is in oversold territory at the moment, and the fundamentals do not justify the scale of the sell-off we have seen in recent weeks. The oil market is still tight, as reflected in the prompt Brent spread. The outlook is for this tightness to persist.
OPEC released its latest monthly market report yesterday, which included its first forecasts for 2023. OPEC forecasts that oil demand will grow by 2.7MMbbls/d, partly supported by a recovery in Chinese demand following Covid lockdowns this year. However, the group expects that non-OPEC oil supply will grow by 1.7MMbbls/d. In order to balance the global market next year, OPEC would need to produce on average 30.1MMbbls/d, which is around 1.4MMbbls/d above where the group is currently producing. Given that OPEC has struggled to hit their production target for months, it will likely be a struggle for group to hit this production level, which suggests that the tightness in the global oil market will persist through 2023.
The EIA also released its latest Short Term Energy Outlook yesterday, in which US crude oil production in 2022 is expected to average 11.91MMbbls/d, up 732Mbbls/d YoY. This is largely unchanged from previous forecasts. However, for 2023 the EIA expects that oil output will grow by 860Mbbls/d YoY to average 12.77MMbbls/d, which is below a previous forecast of 12.97MMbbls/d.
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