Petroleum Africa
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Tuesday, October 11, 2022
Release
At a hastily convened meeting in Vienna on 5 October, OPEC+ ministers agreed to slash global oil supplies by 2 million bpd (vs. August quotas) in November.
This was despite the absence of any immediate sign of oversupply. Global onshore crude stocks have been flat for several weeks and crude supply and demand in balance. But crude prices had dipped below $90/barrel, a price identified by climate data company Kayrros’ model of the oil market as a strong support level for the next several years.
Kayrros is a global climate tech company and the world leader in earth observation technology. They use data and insights from satellite imagery and AI to help governments, investors and businesses understand global climate and energy risks to make better decisions.
The actual OPEC supply cut is expected to be closer to 800,000 bpd-1.1 million bpd, as many OPEC+ members had been producing well below target. It is unusual for OPEC to defend oil prices in the midst of a looming recession. In the past, producers have sought to ease rather than exacerbate economic pressures.
Releases from the U.S. Strategic Petroleum Reserve have accelerated since the invasion of Ukraine, averaging about 680,000 bpd. This has now been cancelled out by the OPEC cuts, which are projected to average between 800,000 bpd and 1.1 million bpd.
However, the flat trend of crude inventories last month departs from seasonal patterns and thus may be seen as a potential indicator of looming oversupply. Stocks usually fall in September.
The preemptive supply cut also comes amid heightened geopolitical pressures, including G7 and EU moves to impose a price cap on Russian crude, a unilateral effort by consumers to set the oil price that is deeply unpopular with producers, even if targeted at only one of them.
Although some producers have invoked the steep supply cuts of April 2020 as a precedent for the latest measures, the situation couldn’t be more different.
Whereas rapidly rising stocks were testing storage capacity limits at the height of the Covid pandemic, today’s average storage capacity utilization is low even compared to pre-Covid years. This reflects in part the steep growth of storage capacity in recent years, particularly in China. China used that capacity to build up its stockpiles after Russia’s invasion of Ukraine, boosting its imports of discounted Russian crude, but has since been destocking and is back at pre-invasion levels.
The OPEC cuts suggest a shift in the global governance of the oil market from a previous focus on supply management – ensuring the stability of the physical oil market and smoothing out supply/demand imbalances – to a conscious attempt to manage prices.
Founded in 2016, Kayrros is a global climate tech company and the world leader in earth observation technology. They help governments, investors and businesses make better decisions, leveraging the power of satellite imagery and artificial intelligence to provide data and insights into global energy supplies and natural resources. By bringing transparency to the environment, they give their partners the means to understand climate and energy risks to help create a better world. Kayrros has offices in Paris, Houston, New York, London, Bangalore and Singapore.
For more information visit Karryos here.
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