The Strategist

Oil market may face supply shortages

07/14/2021 - 03:41

Demand growth is already far outstripping production growth, according to a report by the International Energy Agency (IEA).

Global oil demand rose by 3.2m bpd to 96.8m bpd in June, according to a July report from the International Energy Agency. Next year's increase could be 5.4m bpd. Year to year demand grew by 11.8m bpd in the second quarter of 2021. In the second half of the year, it could rise to 98.7m bpd, which would be 4.6m bpd higher than in the same period last year.

Oil supply is also rising - but not enough to cover the increase in demand, the IEA said.

In June supply increased by 1.1m b/d to 95.6m b/d (7.3m b/d year-on-year). Including OPEC+ production rose from 40.45m b/d in May to 40.9m b/d in June. OPEC+ compliance was 114%, including Russia's 96% (June production was 9.52m b/d). Iran's supply for the month increased by 50,000 bpd to 2.45 m bpd.

In July Saudi Arabia intends to completely abandon its additional voluntary cut of supply. However, further supply increases are still doubtful - OPEC+ countries have not been able to agree on production increases since August this year - the UAE has opposed extending the deal beyond April 2022. Until new agreements are reached, quotas will remain at July levels (i.e. production cuts of 5.8m b/d).

The IEA believes that non-parties could add 770,000 bpd this year and 1.6m bpd in 2022. The US will see almost no increase in production this year, but it could rise by 1m b/d next year.