Daily Energy Report
OPEC crude oil production, reactions to the OPEC+ meeting, Aramco’s OSPs, challenges to China’s renewable power projects, Italy’s coal-fired power plants, and more
CHART OF THE DAY: OPEC Production versus Call on OPEC
Figure (1) above shows OPEC’s monthly crude oil production year-on-year. Production levels for June and July are our estimates (dotted red line) based on various factors, including the recent Saudi additional voluntary cut of 1 mb/d for July. The dotted black line represents the quarterly average of the call on OPEC as we calculated it based on data from the latest OPEC Monthly Oil Market Report.
EOA’s Main Takeaway:
As we stated in our commentary yesterday, and following the OPEC+ eventful meeting, the Saudi cut is intended to regain the market narrative, and it is not driven by weak oil demand. However, the dotted black line in the chart above represents the Call on OPEC, the difference between global oil demand and non-OPEC supply (and OPEC NGLs). The gap between the call on OPEC, the black dotted line, and OPEC's estimated production in July, the red dotted line, shows a shortage, which should be filled either by an increase in OPEC production, a withdrawal from inventories, or both, later this year. As we indicated in our pre-OPEC+ meeting commentary, and in the absence of a recession, OPEC has no choice but to hike production later this year. Any increase in output will happen easily and smoothly— those who volunteered to cut will start increasing production first. Oil producers who applied the largest cuts will be the main members to increase production as demand and prices rise.
The bottom line here is that something got to give: either OPEC has to lower its forecasts, or OPEC has to increase production.
STORY OF THE DAY
Following the OPEC+ meeting on Sunday, Saudi Aramco increased today its oil prices to Asian, European, and North American buyers, according to media reports.
Prices of Arab Light crude were increased by $0.45/b for Asian customers. Prices of other Saudi crudes were also raised by the same amount. Meanwhile, Saudi crude grades sold to North American buyers were raised by $0.90/b, and the same goes for prices for Northern Europe, according to the Wall Street Journal. Aramco also raised the OSPs of all crude varieties for Mediterranean customers by $0.60/b.
After Sunday’s OPEC+ meeting, observers and analysts in the oil market, including us, said that Aramco needed to lower its OSPs, which obviously did not happen.