Despite OPEC shortfall, first global oil surplus of 360,000 barrels per day

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RJS, Focus on Fracking; Oil prices went on another wild ride, but i’m going to copy what I wrote on the monthly OPEC report here. The oil surplus, albeit small, surprised me. If it was going to happen, it would be during the winter for most of the planet’s driving population. Note this is for February, before the Russian sh*t really hit the fan . . .

February global oil surplus of 360,000 barrels per day is first in 13 months, despite OPEC production shortfall of 668,000 barrels per day 

OPEC Oil Report for February

Tuesday of the past week saw the release of OPEC’s March Oil Market Report, which includes details on OPEC & global oil data for February, and hence it gives us a picture of the global oil supply & demand situation after ‘OPEC+’ agreed to increase their output by 400,000 barrels per day for the seventh consecutive month from the previously agreed to July level, which was in turn part of the fifth production quota policy reset that they’ve made over the past twenty months, all in response to the pandemic-related slowdown and subsequent irregular recovery . . . note that with Omicron infections increasing again globally, and the direction and impact of the Ukraine war uncertain, we consider the demand projections made herein, which are essentially unchanged from the prior report, to be bordering on fictional, and hence will not address anything past the February data..

The first table from this monthly report we’ll review is from the page numbered 46 of this month’s report (pdf page 56), 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 440,000 barrels per day to 28,473,000 barrels per day during February, up from their revised January production total which averaged 28,033,000 barrels per day . . . however, January output figure was originally reported as 27,981,000 barrels per day, which therefore means that OPEC’s January production was revised 52,000 barrels per day higher with this report, and hence OPEC’s February production was, in effect, 492,000 barrels per day higher than the previously reported OPEC production figure (for your reference, here is the table of the official January 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, 2021, the oil producers party to that agreement were to raise their output by a total of 400,000 barrels per day each month through December 2021, which was subsequently renewed to include further 400,000 barrel per day production increases in January and in February 2022, and which would indicate an increase of 255,000 barrels per day from the OPEC members listed above . . . but as we can see from the above table, OPEC’s increase of 440,000 barrels per day far exceeded that . . . however, since their January output increase was only 64,000 barrels per day, that means the organization’s increase over two months was close to what was expected of them. However, as we’ll see in the next table, their February production still remains below the output quota that they were assigned at the joint meeting on January 4th, that set February’s specific quotas for OPEC and other aligned producers.

The adjacent table was first presented as a downloadable attachment to the press release following the 24th OPEC and non-OPEC Ministerial Meeting on January 4th, 2022, which set OPEC’s production quotas for February . . . since war torn Libya and US sanctioned producers Iran and Venezuela are exempt from the production cuts imposed by the joint agreement that governs the output of the other OPEC producers, they are not shown here, and OPEC’s quota is aggregated under the total listed for the ‘OPEC 10’, which you can see was at 24,808,000 barrels per day in February . . . therefore, the 24,140,000 barrels those 10 OPEC members actually produced in February were 668,000 barrels per day short of what they were expected to produce during the month, with Nigeria and Angola accounting for most of this month’s shortfall…

Recall that the original 2020 oil producer’s agreement was to jointly cut oil production by 23%, or 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 2020, but the initial 9.7 million bpd production cut agreement was 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 that 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 their January 2021 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 a cut of 7.2 million barrels per day from the original 2018 baseline . . . then, during a difficult meeting on April 1st of last year, OPEC and the other oil producers that are aligned with them agreed to incrementally adjust their oil production higher each month by a pre-set amount for each country over the following three months, thus extending their joint output cut agreement through July . . . production levels for August and the following months of last year were to be determined by a July 1st OPEC meeting. The meeting was adjourned on July 2nd due to a dispute between the UAE and the Saudis over the 2018 reference production levels, and a subsequent attempt to restart that meeting on July 5th was called off It wasn’t until July 18th 2021 that a tentative compromise addressing August’s output 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 following months, and also to boost reference production levels for the UAE, the Saudis, Iraq and Kuwait beginning in April 2022 . . . OPEC and other producers then agreed to increase their production in January 2022 by a further 400,000 barrels per day in a meeting concluded on the 2nd of December, 2021, and reaffirmed their intention to continue that policy with another 400,000 barrel per day increase in February at a meeting concluded January 4, 2022, and then agreed to stick to that 400,000 bpd oil output increase in March, despite pressure from the US to raise output more quickly, at a meeting on February 2nd . . . finally, at a meeting on March 2nd, OPEC and its oil-producing allies, which included Russia, decided to hold their production increase at that level thru April in an OPEC+ meeting that only lasted 13 minutes, their shortest meeting ever…

Hence OPEC arrived at the production quotas for August 2021 through March of this year by repeatedly readjusting the original 23%, or 9.7 million barrel per day production cut from the October 2018 baseline 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 oil 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 last year . . . under the agreement prior to the current one, OPEC’s production cut in April 2021 was set at 4,564,000 barrels per day below the October 2018 baseline, which was lowered to a cut of 3,650,000 barrels per day from the baseline with the prior comprehensive 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 that agreement . . . for OPEC and the other producers to increase their output by 400,000 barrels per day from that July 2021 level, each producer would be allowed to initially increase their production by just over 1% per month since that time . . . for OPEC alone, a 255,000 barrel per day increase each month since, beginning with the July 2021 quota of 23,033,000 barrels per day, is how they arrived at the 24,808,000 barrels per day quota for February.

The next graphic from this month’s report that we’ll look at shows us both OPEC’s and worldwide oil production monthly on the same graph, over the period from March 2020 to February 2022, and it comes from page 47 (pdf page 57) of OPEC’s March 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 440,000 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 960,000 barrels per day to average 99.50 million barrels per day in February, a reported increase which came after January’s total global output figure was apparently revised down by 150,000 barrels per day from the 98.69 million barrels per day of global oil output that was estimated for January a month ago, as non-OPEC oil production rose by a rounded 520,000 barrels per day in February after that downward revision, with 340,000 barrels per day of the increase coming from Canada and Norway, both of whom experienced a rebound in production in February after weather related outages

After that increase in February’s global output, the 99.50 million barrels of oil per day that were produced globally during the month were 7.49 million barrels per day, or 8.1% more than the revised 92.01 million barrels of oil per day that were being produced globally in February a year ago, which was the second month that OPEC and their allied producers had reduced their output cuts by 500,000 barrels per day from the 7.7 million barrels per day production cut that they applied to the last 5 months of 2020, but the first month that the Saudis had unilaterally decreased their own production by a million barrels per day in response to the pandemic (see the March 2021 OPEC report (online pdf) for the originally reported February 2021 details)…with this month’s increase in OPEC’s output, their February oil production of 28,473,000 barrels per day amounted to 28.6% of what was produced globally during the month, up from their 28.4% share of the global total in January….OPEC’s February 2021 production was reported at 24.848,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year produced 3,625,000 barrels per day, or 14.6% more barrels per day of oil this February than what they produced a year earlier, when they accounted for 26.9% of global output…

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 was a bit more than the expected global demand, as this next table from the OPEC report will show us….

This table (left) comes from page 27 of the March Oil Market Report (pdf page 37), and it shows regional and total oil demand estimates in millions of barrels per day for 2021 in the first column, and then OPEC’s estimate of oil demand by region and globally quarterly over 2022 over the rest of the table . . . on the “Total world” line in the second column, we’ve circled in blue the figure that’s relevant for February, which is their estimate of global oil demand during the first quarter of 2022 . . . OPEC is estimating that during the 1st quarter of this year, all oil consuming regions of the globe have been using an average of 99.14 million barrels of oil per day, which is an upward revision of 10,000 barrels per day from their estimate for 1st quarter demand of a month ago (that revision is circled in green) . . . 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 producing 99.50 million barrels million barrels per day during February, which would imply that there was a modest surplus of around 360,000 barrels per day of global oil production in February, when compared to the demand estimated for the month . . . that would be the first global oil surplus since January 2021…

In addition to figuring February’s global oil supply surplus that’s evident in this report, the downward revision of 150,000 barrels per day to January’s global oil output that’s implied in this report, in addition to the 10,000 barrels per day upward revision to first quarter demand noted above, means the 440,000 barrels per day global oil output shortage we had previously figured for January would now be revised to a shortage of 600,000 barrels per day for that month alone…

Also note that in orange we’ve also circled an upward revision of 90,000 barrels per day to 2021’s demand, which also means the supply shortfalls that we previously reported for last year would have to be revised . . . a separate table on page 26 of the March Oil Market Report (pdf page 36) indicates the revisions to 2021 demand included an upward revision of 330,000 barrels per day to 4th quarter demand, an upward revision of 50,000 barrels per day to 3rd quarter demand, an upward revision of 30,000 barrels per day to 2nd quarter demand. and an upward revision of 10,000 barrels per day to 1st quarter demand, We’re not inclined to go back and recompute each month of 2021, but we do have adequate totals for the year such that we can estimate an aggregate revision…

With the release of OPEC’s January Oil Market Report two months ago, we had complete and revised data for all of 2021, and found that the world was short 527,910,000 barrels of oil during the year, which worked out to a shortage of 1,446,300 barrels of oil per day . . . OPEC’s February Oil Market Report then revised aggregate global demand for 2021 higher by 10,000 barrels per day, and now this month’s report has revised that demand higher by another 90,000 barrels per day . . . that means our estimate of 2021’s oil shortage now needs to be revised 100,000 barrels per day higher, or to 1,546,300 barrels per day . . . that would thus revise the total shortage total shortage of oil for last year up to 531,560,000 barrels. We are still far from running out. The quantities of oil being produced globally during the pandemic of 2020 still averaged over 1.1 trillion barrels, or over 3 million barrels per day more than anyone wanted.