Global oil markets are on track for a sharp supply deficit of more than 2 million barrels a day this quarter as Saudi Arabia slashes production, OPEC data indicate.
Output from the Organization of Petroleum Exporting Countries tumbled last month as the kingdom implemented a unilateral cutback to shore up markets, according to a report from the group on Thursday.
The Saudis will maintain the cut this month and next as planned, meaning OPEC’s production could average the current rate about 27.3 million barrels a day for the whole quarter. That’s about 2.26 million a day less than consumers require, potentially resulting in the steepest inventory decline in two years, OPEC data suggest.
Oil prices have climbed to a seven-month high near $88 a barrel in London as world consumption rises toward record levels while OPEC and its partners constrain supply, depleting inventories in the US and elsewhere.
Major consuming nations have criticized the Saudis and their allies for constricting output, warning that a renewed inflationary spike could inflict more pain on consumers. Nonetheless, Riyadh has said it could prolong and even deepen the supply curbs if necessary.
Still, it’s possible that stockpiles don’t fall as dramatically as OPEC’s projections imply.
Demand in China, the world’s biggest importer, is clouded by lackluster economic indicators. The country’s crude imports tumbled in July to the lowest in six months, and its latest consumer price index suggests the Asian giant slid into deflation. Concerns also persist over the health of the US economy.
But for the time being, the oil market is clearly tightening.
Production from OPEC’s 13 members declined by a hefty 836,000 barrels a day in July as the Saudis lowered production to about 9 million barrels a day, according to the group’s report. Oil inventories in developed nations are below their five-year average, OPEC estimates.
Supplies are also shrinking from a wider alliance of producers known as OPEC+, which includes Russia. After holding exports steady for months to fund its brutal war against Ukraine, Moscow is belatedly fulfilling an OPEC+ agreement by reducing shipments.
OPEC forecasts that daily global oil consumption will increase by 2.4 million barrels this year to average 102 million barrels. It predicts a further increase of 2.2 million barrels a day in 2024.
The International Energy Agency, which advises consuming nations, will publish its latest assessment of global oil markets on Friday. The full 23-nation OPEC+ alliance is due to meet for a review of production policy in late November.