Global Oil Shortage 440,000 barrels, OPEC Falls Short 743,000 barrels

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RJS, Focus on Fracking; Global oil shortage at 440,000 barrels per day in January as OPEC’s output falls 749,000 barrels per day short; 2021’s oil shortage revised to 1.5 million barrels per day

OPEC’s January Oil Market Report

Thursday of the past week saw the release of OPEC’s February Oil Market Report, which includes details on OPEC & global oil data for January, and hence it gives us a picture of the global oil supply & demand situation for the sixth month after ‘OPEC+’ agreed to increase their output by 400,000 barrels per day each 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 . . . with US Omicron infections apparently subsiding at the time of this report, we need to again caution that the global oil demand estimates made by OPEC herein, while the eventual global course of the Covid-19 pandemic still remains uncertain, 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 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 64,000 barrels per day to 27,981,000 barrels per day during January, up from their revised December production total which averaged 27,918,000 barrels per day . . . however, that December output figure was originally reported as 27,882,000 barrels per day, which therefore means that OPEC’s December production was revised 36,000 barrels per day higher with this report, and hence OPEC’s January production was, in effect, a 100,000 barrel per day increase from the previously reported OPEC production figure (for your reference, here is the table of the official December 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, which was subsequently renewed to include another 400,000 barrel per day production increase in January, and which would include an increase of 254,000 barrels per day from the OPEC members listed above . . . but as we can see from the above table, OPEC’s increase of 64,000 barrels per day was far short of that . . . the apparent reasons for their production shortfall in January were the 51,000 barrel per day decrease in Venezuela’s output, the 45,000 barrel per day decrease in Libya’s output, the 27,000 barrel per day decrease in Iraq’s output, and to a lesser extent the production decreases by Congo and Gabon . . . while we knew that Libyan production has frequently been disrupted by episodes of civil strife and that Iraq’s output was interrupted by an explosion on a key export pipeline to Turkey, it turns out that Venezuela was unable to meet their quota because a shipment of Iranian condensate, which it uses to blend its extra-heavy crude, did not arrive in January, forcing a production shutdown….

Recall that the original 2020 oil producer’s agreement was to cut oil 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 2020, but that 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 that 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 over the following three months, thus extending 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 OPEC meeting, but that 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 . . . so 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, a little over a week ago…

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 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 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 . . . for the ten members of OPEC who agreed to impose production 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, then roughly 23,786,000 barrels per day in October, then 24,041,000 barrels per day in November, then 24,296,000 barrels per day in December, and finally to 24,551,000 barrels per day in January . . . therefore, the 23,802,000 barrels those 10 OPEC members actually produced in January were 749,000 barrels per day short of what they were expected to produce during the month, with Nigeria, Angola, and the Saudis accounting for most of this month’s shortfall….

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 February 2020 to January 2022, and it comes from page 47 (pdf page 57) of OPEC’s February 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 modest 64,000 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 710,000 barrels per day to average 98.69 million barrels per day in January, a reported increase which came after December’s total global output figure was apparently revised down by 530,000 barrels per day from the 98.51 million barrels per day of global oil output that was estimated for December a month ago, as non-OPEC oil production rose by a rounded 650,000 barrels per day in January after that downward revision, with 80,000 barrels per day of the increase coming from OECD countries, primarily Norway and the UK, while non-OECD countries increased their output by 530,000 barrels per day, predominantly driven by production increases from Russia, Ecuador and Brazil… note that the graph above now shows a decline in December’s global production, whereas a month ago OPEC had reported an 650,000 barrels per day global production increase for the month

After that increase in January’s global output, the 98.69 million barrels of oil per day that were produced globally during the month were 5.10 million barrels per day, or 5.4 more than the revised 93.59 million barrels of oil per day that were being produced globally in January a year ago, which was the initial month that OPEC and their allied producers agreed to reduce 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 (see the February 2021 OPEC report (online pdf) for the originally reported January 2021 details) . . . with this month’s relatively small increase in OPEC’s output, their January oil production of 27,981,000 barrels per day amounted to 28.4% of what was produced globally during the month, down from their 28.5% revised share of the global total in December . . . OPEC’s January 2021 production was reported at 25,496,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year produced 2,485,000 barrels per day, or 9.7% more barrels per day of oil this January than what they produced a year earlier, when they accounted for 27.4% 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 still fell a bit 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 February 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 January, 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 will be using an average of 99.13 million barrels of oil per day, and that oil consumers will be using 100.80 barrels per day over the entire year, now indicating a level of demand above that of 2019, when global demand averaged 99.98 million barrels per day . . . 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 98.69 million barrels million barrels per day during January, which would imply that there was a modest shortage of around 440,000 barrels per day in global oil production in January when compared to the demand estimated for the month..

Also note on the table above that we’ve circled in green a small upward revision of 10,000 barrels per day to the demand figure for last year…a separate table on page 26 of this month’s Oil Market Report indicates that was due to a 20,000 barrels per day upward revision to the demand figure for the fourth quarter of 2021, and a 30,000 barrels per day upward revision to the demand figure for the third quarter of 2021, which thus means that the supply shortfalls or surpluses that we previously reported for those quarters of last year would need to be revised . . . a month ago we estimated that there was a shortage of around 1,240,000 barrels per day in global oil production in December, based on the figures that were published at that time…however, as we saw earlier, December’s global output figure was revised down by 530,000 barrels per day from those figures, while global demand for the 4th quarter of 2021 has now been revised 20,000 barrels per day higher, so with those revised figures, we now find that global oil production in December was running roughly 1,790,000 barrels per day short of demand…

In addition to figuring the December oil shortage that’s indicated by this report, the upward revision of 20,000 barrels per day to 4th quarter demand we’ve noted above means that the 1,890,000 barrels per day global oil output shortage we had previously figured for November would now be revised to an oil shortage of 1,910,000 barrels per day . . . likewise, the upward revision of 20,000 barrels per day to 4th quarter demand noted above means that the 2,350,000 barrels per day global oil output shortage we had previously figured for October would now be revised to an oil shortage of 2,370,000 barrels per day…

As we previously mentioned, there was also a upward revision of 30,000 barrels per day to the third quarter’s demand . . . that means that the 1,600,000 barrels per day global oil output shortage we had previously figured for September would now be revised to a shortage of 1,630,000 barrels per day . . . in like manner, the 30,000 barrels per day upward revision to 3rd quarter demand means that the shortage of 2,110,000 barrels per day we had previously figured for August would now be revised to a shortage of 2,140,000 barrels per day, and that the shortage of 1,690,000 barrels per day barrels per day we had previously figured for July would have to be revised to a shortage of 1,720,000 barrels per day…

After those revisions to our oil shortage estimates for the last 6 months of 2021, we should also go back and revise our estimate of the oil supply shortage for all last year…a month ago, we had listed our revised estimates for each month of last year based on the 12 monthly oil market reports that OPEC released over the year, and the monthly revisions to the supply and demand figures therein, and we found that the world was short 527,910,000 barrels of oil in 2021, which worked out to a shortage of 1,446,300 barrels of oil per day…with January’s revisions, we now find the world was short 548,940,000 barrels of oil in 2021, which works out to a shortage of 1,503,950 barrels of oil per day….despite that, we’re still far from running out, because the quantities of oil being produced globally during the pandemic of 2020 still averaged over 3 million barrels per day more than anyone wanted….