Key takeaways
1. In 1H 2023, the situation on the oil market turned upside down. In Q1 2023, analysts expected a deficit by the end of 1H 2023, however, in reality, a surplus was formed on the global oil market due to the increase in oil supply by countries outside the OPEC+ alliance (non-OPEC+), which resulted in an increase in commercial oil inventories..
Amid continued macroeconomic tension and monetary tightening by leading central banks, analysts expect growth in global oil demand. Rising demand, combined with OPEC+ efforts to maintain its policy of cutting production quotas, could exacerbate volatility in the global oil market. Market volatility is expected to persist, but analysts are inclined to believe that the balance may change as early as Q3 2023.
2. Global oil demand in Q2 2023 was supported by the US, EU countries, China and India.
The main drivers of oil demand growth in the US and EU countries were seasonal demand for transportation fuel, as well as sustained air travel activity. Seasonal growth in demand from EU countries in Q2 2023 was higher than expected, while in the US, on the contrary, it was lower than forecast.
Demand for oil from China continues its growth trend and at the end of Q2 2023 exceeded the dynamics expected by analysts. Petrochemical sector played a significant role in supporting demand in Q2 2023.
According to the IEA estimates, global demand is under pressure from the difficult economic environment. Despite the fact that analysts are gradually lowering their forecasts, global oil demand is still expected to grow by the end of 2023, with the vast majority of the growth coming from the non-OECD.
3. At the end of Q2 2023, global oil supply increased despite OPEC+ oil production cuts.
However, the situation is expected to change amid voluntary cuts by Saudi Arabia, starting in July 2023, and the extension of voluntary cuts by Russia, and as a result of Russia's export restrictions, starting in August 2023.
Analysts continue to highlight the US, Norway, Canada, Brazil and Guyana among the countries that will be able to support oil market supply in 2023, but their ability to further increase supply remains limited.
4. During Q2 2023, there was a trend towards a gradual decline in Brent crude oil prices, with the price in the range of USD 72-88/bbl. Against the background of the highs observed in 2022, there is a trend towards a decline in the price of Brent crude oil to the range of a “comfortable” long-term level.
OPEC analysts note that in June the market sentiment was still dominated by heightened concerns about the situation in the global economy, the prospects for global demand dynamics and monetary tightening. The extension of the OPEC+ agreement on oil production cuts until the end of 2024, announced on 4 June 2023, failed to reverse or significantly change the price dynamics.
In the short term, the main factors influencing prices will be the global political and macroeconomic environment, as well as the possibility of achieving a balance between potentially increasing demand and gradually shrinking supply.
The current long-term (after 2027) consensus forecast for the price of Brent crude oil is about USD 72/bbl in real terms, in 2023 prices.
