Supply Shortfall To Drive Oil Market Volatility By Q4 –IEA

The International Energy Agency (IEA) has said oil prices are heading for a surge in volatility amid an expected “significant supply shortfall” on the market in the fourth quarter of 2023. This, the Agency, says is due to the Saudi-led cuts to OPEC+ oil supply. So far this year, higher crude oil production from countries outside the OPEC+ alliance has managed to offset part of the OPEC+ cuts. “But from September onwards, the loss of OPEC+ production, led by Saudi Arabia, will drive a significant supply shortfall through the fourth quarter,” the IEA said in its closely-watched Oil-Market Report for September. Last week, Saudi Arabia and Russia extended their production and export cuts of 1 million barrels per day (bpd) and 300,000 bpd, respectively, until the end of 2023, pushing Brent Crude prices to above $90 per barrel and the highest level in 10 months. Oil prices traded in relative calm during August, with volatility at multi-year lows, the IEA said but however, a calm August was followed by the announcements of extensions of the supply cuts in early September, which sent prices and volatility higher. Volatility could further increase through the end of this year, according to the Agency. If the two OPEC+ leaders unwind the cuts in early 2024, the market would shift to a surplus, the IEA said, but noted that oil stocks would still be at uncomfortably low levels. This increases “the risk of another surge in volatility that would be in the interest of neither producers nor consumers, given the fragile economic environment,” the Paris-based agency added. “The Saudi-Russian alliance is proving a formidable challenge for oil markets,” it said, commenting on the move higher in oil prices and on its previous warnings about an already tightening oil market. In August, observed global inventories plunged by a massive 76.3 million barrels, or by 2.46 million bpd, per the IEA estimates.

Current oil output unlikely to change as OPEC meets Friday

The Organization of Petroleum Exporting Countries (OPEC) is not likely going to make any changes to the current oil output policy as tighter supplies and resilient demand drive an oil price rally. Ministers from the OPEC and allies led by Russia, known as OPEC+, meet on August 4 and the panel, called the Joint Ministerial Monitoring Committee, can call for a full OPEC meeting if warranted. Oil has rallied to a three-month high this week above $85 a barrel for Brent crude, as tighter supply and rising demand outweigh concern that interest rate hikes and stubborn inflation could hit economic growth.The Six OPEC+ sources said the Committee would probably not make any changes to existing policy during Friday’s online meeting as one of them cited the rising oil price as a reason to take no action.The OPEC and the Saudi Energy Ministry did not immediately respond to requests for comment on Tuesday.In the latest comments from an OPEC member about the market, the energy minister for the United Arab Emirates told Reuters on July 21 that current OPEC+ actions were sufficient for now and the group was “only a phone call away” if any further steps are needed. The UAE minister sits on the JMMC, which is chaired by Saudi Energy Minister Prince Abdulaziz bin Salman. Still, a surprise cannot be ruled out. The Saudi minister in July said OPEC+ would “continue the effort at surprising markets”. In April, several OPEC+ members announced cuts just ahead of a JMMC meeting that was expected to take no action. At its last policy meeting in June, OPEC+ agreed on a broad deal to limit supply into 2024 and Saudi Arabia pledged a voluntary production cut for July that it has since extended to include August. Analysts told Reuters last week they expected Saudi Arabia to extend the voluntary cut for another month to include September. National Australia Bank said in a report on Tuesday that it expected the Saudis to announce an extension of their voluntary cut at the committee meeting on Friday.