Global Oil shortage at 1,930,000 barrels per day in October

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Blogger RJS, MarketWatch 666 and Focus on Fracking, Global Oil Shortage at 1,930,000 barrels per day in October as OPEC’s output falls 588,000 barrels per day short of quota

OPEC’s October Oil Market Report

Thursday of this week saw the release of OPEC’s November Oil Market Report, which includes OPEC & global oil data for October, and hence it gives us a picture of the global oil supply & demand situation for the third month after ‘OPEC+’ agreed to increase their output by 400,000 barrels per day monthly from the previously agreed to July level, which was part of the fifth production quota policy reset they’ve made over the past year and a half, all in response to the pandemic-related slowdown and subsequent irregular recovery . . . we’ll again caution that the oil demand estimates made by OPEC herein, while the course of the Covid-19 pandemic still remains uncertain in most countries around the globe, should be considered as having a much larger margin of error than we’d expect from this report during stable and hence more predictable periods..

The first table from this monthly report that we’ll check is from the page numbered 49 of this month’s report (pdf page 59), and it shows oil production in thousands of barrels per day for each of the current OPEC members over the recent years, quarters and months, as the column headings below indicate . . . for all their official production measurements, OPEC uses an average of estimates from six “secondary sources”, namely the International Energy Agency (IEA), the oil-pricing agencies Platts and Argus, ‎the U.S. Energy Information Administration (EIA), the oil consultancy Cambridge Energy Research Associates (CERA) and the industry newsletter Petroleum Intelligence Weekly, as a means of impartially adjudicating whether their output quotas and production cuts are being met, to thereby avert any potential disputes that could arise if each member reported their own figures…

As we can see on the bottom line of the above table, OPEC’s oil output increased by 217,000 barrels per day to 27,453,000 barrels per day during October, up from their revised September production total of 26,236,000 barrels per day…however, that September output figure was originally reported as 27,328,000 barrels per day, which therefore means that OPEC’s September production was revised down by 92,000 barrels per day with this report, and hence OPEC’s October production was, in effect, just a 125,000 barrel per day increase from the previously reported OPEC production figure (for your reference, here is the table of the official September OPEC output figures as reported a month ago, before this month’s revision) . . .

According to the agreement reached between OPEC and the other oil producers at their Ministerial Meeting on July 18th, the oil producers party to that agreement were to raise their output by a total of 400,000 barrels per day in October, which would include an increase of 254,000 barrels per day from the OPEC members listed above . . . but as you can see from the above table, OPEC’s increase of 217,000 barrels per day was a bit less than that . . . since each OPEC member was expected to raise their output in October, the production decreases of 45,000 barrels per day by Nigeria, 17,000 barrels per day from Gabon, and 13,000 barrels per day from Equatorial Guinea were the reason that OPEC failed to meet their expected output quota…while i heard no news from Gabon or Equatorial Guinea that would account for their production decrease, it’s likely that an equipment failure and subsequent oil spill at a Bayelsa well head on October 17, as well as persistent domestic sabotage of the country’s main oil pipeline, were the reasons for Nigeria’s drop in output…

Recall that last year’s original oil producer’s agreement was to cut production by 9.7 million barrels per day from an October 2018 baseline for just two months early in the pandemic, during May and June of last year, but that initial agreement had been extended to include July 2020 at a meeting between OPEC and other producers on June 6th, 2020….then, in a subsequent meeting in July of last year, OPEC and the other oil producers agreed to ease their deep supply cuts by 2 million barrels per day to 7.7 million barrels per day for August 2020 and subsequent months, which thus became the agreement that governed OPEC’s output for the rest of 2020…the OPEC+ agreement for this January’s production, which was later extended to include February and March and then April’s output, was to further ease their supply cuts by 500,000 barrels per day to 7.2 million barrels per day from that original baseline . . . then, during a difficult meeting on April 1st of this year, OPEC and the other oil producers that are aligned with them agreed to incrementally adjust their oil production higher each month over the next three months, taking their joint output cut agreement through July….production levels for August and the following months of this year were to be determined by a July 1st meeting, but that meeting was adjourned on July 2nd due to a dispute between the UAE and the Saudis over reference production levels, and a subsequent attempt to restart that meeting on July 5th was called off….so it wasn’t until July 18th that a tentative compromise addressing August quotas was worked out, allowing oil producers in aggregate to increase their production by 400,000 barrels per day in August and again by that amount in each of the later months, and boosting reference production levels for the UAE, the Saudis, Iraq and Kuwait beginning in April 2022…

OPEC arrived at the production quotas for August and September of this year by repeatedly adjusting the original 23%, or 9.7 million barrel per day production cut from the October 2018 baseline that they first agreed to for May and June 2020, first to a 7.7 million barrel per day output reduction from the baseline for the remainder of 2020, then to a 7.2 million barrel per day production cut from the baseline for the first four months of this year, which was actually raised to an 8.2 million barrel per day output reduction after the Saudis unilaterally committed to cut their own production by a million barrels per day during February, March, and then later during April of this year . . . under the prior agreement, OPEC’s production cut in April was at 4,564,000 barrels per day from the October 2018 baseline, which was lowered to a cut of 3,650,000 barrels per day from the baseline with the latest agreement, which thus set the July production quota for the “OPEC 10” at 23,033,000 barrels per day, with war torn Libya and US sanctioned producers Iran and Venezuela exempt from the production cuts imposed by this agreement . . . for OPEC and the other producers to increase their output by 400,000 barrels per day from that July level, each producer would be allowed to increase their production by just over 1% per month…for the ten members of OPEC who agreed to impose cuts on themselves, that would mean their August output quota would be roughly 23,277,000 barrels per day, then 23,531,000 barrels per day in September, and then roughly 23,786,000 barrels per day in October . . . therefore, the 23,197,000 barrels those 10 OPEC members produced in October were 588,000 barrels per day short of what they were expected to produce, with Nigeria, Angola and the Saudis accounting for the most of this month’s shortfall..

The next graphic from this month’s report that we’ll highlight shows us both OPEC’s and worldwide oil production monthly on the same graph, over the period from November 2019 to October 2021, and it comes from page 50 (pdf page 60) of OPEC’s November Monthly Oil Market Report . . . on this graph, the cerulean blue bars represent OPEC’s monthly oil production in millions of barrels per day as shown on the left scale, while the purple graph represents global oil production in millions of barrels per day, with the metrics for global output shown on the right scale….

Including this month’s 217,000 barrel per day increase in OPEC’s production from their revised production of a month earlier, OPEC’s preliminary estimate indicates that total global liquids production increased by a rounded 1,740,000 barrels per day to average 97.56 million barrels per day in October, a reported increase which apparently came after  September’s total global output figure was revised down by 110,000 barrels per day from the 95.93 million barrels per day of global oil output that was estimated for September a month ago, as non-OPEC oil production rose by a rounded 1,520,000 barrels per day in October after that revision, with more than two-thirds of the increase coming from OECD countries, predominantly the US, due to the production recovery after Hurricane Ida, while non-OECD countries saw their production increase by 480,000 barrels per day in October, with most of that increase coming from Kazakhstan…

After that increase in October’s global output, the 97.56 million barrels of oil per day that were produced globally during the month were 6.65 million barrels per day, or 7.3% more than the revised 90.91 million barrels of oil per day that were being produced globally in October a year ago, which was the third month after OPEC and other producers agreed to reduce their output cuts from 9.7 million barrels per day to 7.7 million bpd (see the November 2020 OPEC report (online pdf) for the originally reported October 2020 details) . . . with this month’s relatively small increase in OPEC’s output, their October oil production of 27,453,000 barrels per day fell to 28.1% of what was produced globally during the month, a decrease of 0.3% from their revised 28.4% share of the global total in September, which itself was revised down from 28.5%, due to this month’s downward revision to OPEC’s September output . . . OPEC’s October 2020 production was reported at 24,386,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year produced 3,067,000 barrels per day, or 12.6% more barrels per day of oil this October than what they produced a year earlier, when they accounted for 26.7% of global output…

Even after the increases in OPEC’s and global oil output that we’ve seen in this report, the amount of oil being produced globally during the month again fell short of the expected global demand, as this next table from the OPEC report will show us..

The above table came from page 27 of the OPEC November Oil Market Report (pdf page 37), and it shows regional and total oil demand estimates in millions of barrels per day for 2020 in the first column, and then OPEC’s estimate of oil demand by region and globally, quarterly over 2021 over the rest of the table . . . on the “Total world” line in the fifth column, we’ve circled in blue the figure that’s relevant for October, which is their estimate of global oil demand during the fourth quarter of 2021 . . . OPEC is estimating that during the 4th quarter of this year, all oil consuming regions of the globe will be using an average of 99.49 million barrels of oil per day, which as you can see in the green ellipse above, is a rounded 0.33 million barrels per day downward revision from the 99.82 million barrels per day they had estimated for the 4th quarter a month ago, still reflecting a bit of coronavirus related demand destruction compared to 2019, when global demand averaged over 101 million barrels per day during second half of the year….but as OPEC showed us in the oil supply section of this report and the summary supply graph above, OPEC and the rest of the world’s oil producers were only producing 97.56 million barrels per day during October, which would imply  that  there was a shortage of around 1,930,000 barrels per day in global oil production in October when compared to the demand estimated for the month…

in addition to figuring that October oil shortage implied by this report, the downward revision of 110,000 barrels per day to September’s global oil output that’s implied in this report, combined with the 440,000 barrels per day down-ward revision to 3rd quarter demand that we’ve circled in green, means that the 2,400,000 barrels per day global oil output shortage we had previously figured for September would now be revised to a shortage of 2,007,000 barrels per day . . . in like manner, 440,000 barrels per day downward revision to 3rd quarter demand means that the shortage of 3,020,000 barrels per day we had previously figured for August would now be revised to a shortage of 2,580,000 barrels per day, and that the shortage of 2,600,000 barrels per day barrels per day we had previously figured for July would have to be revised to a shortage of 2,160,000 barrels per day…  

Note that in green we’ve also circled a modest upward revision of 20,000 barrels per day to the second quarter’s demand, a quarter when there was also a shortage of oil being produced globally . . . based on that small upward revision to demand, our previous estimate that there was a shortage of 660,000 barrels per day in June would now be revised to a 680,000 barrels per day shortage, the oil shortage of 1,990,000 barrels per day that we had previously figured for May would have to be revised to a shortage of 2,010,000 barrels per day, and that the 2,340,000 barrels per day global oil output shortage we should have figured for April would have to be revised to a shortage of 2,360,000 barrels per day…

Also note that in green we have also circled an upward revision of 100,000 barrels per day to OPEC’s previous estimate of first quarter demand . . . for March, that means that the global oil output surplus of 240,000 barrels per day we had  previously figured for March would now be revised to a surplus of 140,000 barrels per day . . . similarly, the upward revision to first quarter demand means that the 770,000 barrels per day global oil output shortage we had previously figured for February would now be revised to a shortage of 870,000 barrels per day, and that the global oil output surplus of 450,000 barrels per day we had previously figured for January would now be revised to a surplus of 350,000 barrels per day, in light of that 100,000 barrel per day upward revision to first quarter demand…