OPEC’s January Oil Market Report

RJS: Focus on Fracking

December global oil shortage was 1,240,000 barrels per day as OPEC output was 625,000 barrels per day short of quota; global oil shortage for 2021 was 1,446,300 barrels of oil per day.

Tuesday of this week saw the release of OPEC’s January Oil Market Report, which includes OPEC & global oil data for December, and hence it gives us a picture of the global oil supply & demand situation for the fifth month after ‘OPEC+’ agreed to increase their output by 400,000 barrels per day each month from the previously agreed to July level, which was in turn part of the fifth production quota policy reset they’ve made over the past twenty months, all in response to the pandemic-related slowdown and subsequent irregular recovery….with Omicron cases increasing at the time of this report, we need to again caution that the oil demand estimates made by OPEC herein, while the eventual course of the Covid-19 pandemic still remains uncertain, should be considered as having a much larger margin of error than we’d expect from this report during stable and hence more predictable periods..

The first table from this monthly report that we’ll review is from the page numbered 47 of this month’s report (pdf page 57), and it shows oil production in thousands of barrels per day for each of the current OPEC members over the recent years, quarters and months, as the column headings below indicate…for all their official production measurements, OPEC uses an average of estimates from six “secondary sources”, namely the International Energy Agency (IEA), the oil-pricing agencies Platts and Argus, ‎the U.S. Energy Information Administration (EIA), the oil consultancy Cambridge Energy Research Associates (CERA) and the industry newsletter Petroleum Intelligence Weekly, as a means of impartially adjudicating whether their output quotas and production cuts are being met, to thereby avert any potential disputes that could arise if each member reported their own figures…

As we can see on the bottom line of the above table, OPEC’s oil output increased by 166,000 barrels per day to average 27,882,000 barrels per day during December, up from their revised November production total which averaged 27,715,000 barrels per day . . . however, that November output figure was originally reported as 27,717,000 barrels per day, which therefore means that OPEC’s November production was revised 2,000 barrels per day lower with this report, and hence OPEC’s December production was, in effect, a 164,000 barrel per day increase from the previously reported OPEC production figure (for your reference, here is the table of the official November OPEC output figures as reported a month ago, before this month’s revision)…

According to the agreement reached between OPEC and the other oil producers at their Ministerial Meeting on July 18th, 2021, the oil producers party to that agreement were to raise their output by a total of 400,000 barrels per day each month through December, which would include an increase of 254,000 barrels per day from the OPEC members listed above . . . but as we can see from the above table, OPEC’s increase of 166,000 barrels per day was quite a bit less than that . . . the apparent reasons for their production shortfall in December were the 83,000 barrel per day decrease in Libya’s output, and the 43,000 barrel per day decrease in Nigeria’s output . . . both of those countries saw production problems in December, which persist to this day, so expectations are increasing that they’ll not be able to produce their quota any time soon…

Recall that last year’s original oil producer’s agreement was to cut oil production by 9.7 million barrels per day from an October 2018 baseline for just two months early in the pandemic, during May and June of last year, but that initial 9.7 million bpd production cut agreement had been extended to include July 2020 at a meeting between OPEC and other producers on June 6th, 2020….then, in a subsequent meeting in July of last year, OPEC and the other oil producers agreed to ease their deep supply cuts by 2 million barrels per day to 7.7 million barrels per day for August 2020 and subsequent months, which thus became the agreement that governed OPEC’s output for the rest of 2020…the OPEC+ agreement for January 2021 production, which was later extended to include February and March and then April’s oil output, was to further ease their supply cuts by 500,000 barrels per day to a cut of 7.2 million barrels per day from that original baseline…then, during a difficult meeting on April 1st of last year, OPEC and the other oil producers that are aligned with them agreed to incrementally adjust their oil production higher each month by an uncomputed, pre-set amount over the following three months, thus extending their joint output cut agreement through July 2021….production levels for August and the following months of this year were to be determined by a July 1st OPEC meeting, but that meeting was adjourned on July 2nd due to a dispute between the UAE and the Saudis over the 2018 reference production levels, and a subsequent attempt to restart that meeting on July 5th was called off….so it wasn’t until July 18th 2021 that a tentative compromise addressing August’s output quotas was worked out, allowing oil producers in aggregate to increase their production by 400,000 barrels per day in August, and again by that amount in each of the following months, and also boosting reference production levels for the UAE, the Saudis, Iraq and Kuwait beginning in April 2022….OPEC and other producers then agreed to increase their production in January 2022 by a further 400,000 barrels per day in a meeting concluded on the 2nd of December, 2021, and reaffirmed their intention to continue that policy with another 400,000 barrel per day increase in February at a meeting concluded January 4, 2022, a little over two weeks ago…

Hence OPEC arrived at the production quotas for August through December of this year by repeatedly adjusting the original 23%, or 9.7 million barrel per day production cut from the October 2018 baseline that they first agreed to for May and June 2020, first to a 7.7 million barrel per day output reduction from the baseline for the remainder of 2020, then to a 7.2 million barrel per day production cut from the baseline for the first four months of this year, which was actually raised to an 8.2 million barrel per day oil output reduction after the Saudis unilaterally committed to cut their own production by a million barrels per day during February, March, and then later during April of last year . . . under the agreement prior to the current one, OPEC’s production cut in April 2021 was at 4,564,000 barrels per day from the October 2018 baseline, which was lowered to a cut of 3,650,000 barrels per day from the baseline with the prior comprehensive agreement, which thus set the July production quota for the “OPEC 10” at 23,033,000 barrels per day, with war torn Libya and US sanctioned producers Iran and Venezuela exempt from the production cuts imposed by that agreement . . . for OPEC and the other producers to increase their output by 400,000 barrels per day from that July 2021 level, each producer would initially be allowed to increase their production by just over 1% per month…for the ten members of OPEC who agreed to impose production cuts on themselves, that would mean their August output quota would be roughly 23,277,000 barrels per day, then 23,531,000 barrels per day in September, then roughly 23,786,000 barrels per day in October, then 24,041,000 barrels per day in November and finally 24,295,000 barrels per day in December . . . therefore, the 23,670,000 barrels those 10 OPEC members produced in December  were 625,000 barrels per day short of what they were expected to produce during the month, with Nigeria, Angola, and the Saudis accounting for the most of this month’s shortfall….

The next graphic from this month’s report that we’ll highlight shows us both OPEC’s and worldwide oil production monthly on the same graph, over the period from January 2020 to December 2021, and it comes from page 48 (pdf page 58) of OPEC’s January Monthly Oil Market Report . . . on this graph, the cerulean blue bars represent OPEC’s monthly oil production in millions of barrels per day as shown on the left scale, while the purple graph represents global oil production in millions of barrels per day, with the metrics for global output shown on the right scale….

Including this month’s 166,000 barrel per day increase in OPEC’s production from their revised production of a month earlier, OPEC’s preliminary estimate indicates that total global liquids production increased by a rounded 650,000 barrels per day to average 98.51 million barrels per day in December, a reported increase which came after November’s total global output figure was apparently revised down by 420,000 barrels per day from the 98.28 million barrels per day of global oil output that was estimated for November a month ago, as non-OPEC oil production rose by a rounded 480,000 barrels per day in December after that downward revision, with 320,000 barrels per day of the increase coming from OECD countries, predominantly Canada and Norway, while non-OECD countries increased their output by 120,000 barrels per day, primarily driven by production increases from Brazil and Guyana…

After that increase in December’s global output, the 98.51 million barrels of oil per day that were produced globally during the month were 5.82 million barrels per day, or 6.3% more than the revised  92.69 million barrels of oil per day that were being produced globally in December a year ago, which was the fifth month after OPEC and other producers agreed to reduce their output cuts from the original 9.7 million barrels per day to 7.7 million barrels per day (see the January 2021 OPEC report (online pdf) for the originally reported December 2020 details) . . . with this month’s increase in OPEC’s output, their December oil production of 27,882,000 barrels per day amounted to 28.3% of what was produced globally during the month, unchanged from their revised share of the global total in November . . . OPEC’s December 2020 production was reported at 25,362,000 barrels per day, which means that the 13 OPEC members who were part of OPEC last year produced 2,520,000 barrels per day, or 9.9% more barrels per day of oil this December than what they produced a year earlier, when they accounted for 27.3% of global output…

Even after the increases in OPEC’s and global oil output that we’ve seen in this report, the amount of oil being produced globally during the month again fell short of the expected global demand, as this next table from the OPEC report will show us….

The above table came from page 27 of the OPEC January Oil Market Report (pdf page 37), and it shows regional and total oil demand estimates in millions of barrels per day for 2020 in the first column, and then OPEC’s estimate of oil demand by region and globally, quarterly over 2021 over the rest of the table . . . on the “Total world” line in the fifth column, we’ve circled in blue the figure that’s relevant for December, which is their estimate of global oil demand during the fourth quarter of 2021 . . . OPEC has estimated that during the 4th quarter of last year, all oil consuming regions of the globe were using an average of 99.75 million barrels of oil per day, which was a 260,000 barrel per day upward revision from their estimate for the 4th quarter a month ago, still reflecting a bit of coronavirus related demand destruction compared to 2019, when global demand averaged over 101 million barrels per day during second half of the year . . . but as OPEC showed us in the oil supply section of this report and the summary supply graph above, OPEC and the rest of the world’s oil producers were only producing 98.51 million barrels per day during December, which would imply that there was a shortage of around 1,240,000 barrels per day in global oil production in December when compared to the demand estimated for the month…

In addition to figuring the December oil shortage that’s indicated by this report, the upward revision of 260,000 barrels per day to 4th quarter demand we’ve circled in green above, combined with the downward revision of 420,000 barrels per day to November’s global oil output that’s implied in this report, means that the 1,210,000 barrels per day global oil output shortage we had previously figured for November would now be revised to an oil shortage of 1,890,000 barrels per day . . . likewise, the upward revision of 260,000 barrels per day to 4th quarter demand noted above means that the 2,090,000 barrels per day global oil output shortage we had previously figured for October would now be revised to an oil shortage of 2,350,000 barrels per day…

However, note on the table above that we’ve also circled in green a downward revision of 240,000 barrels per day to the third quarter’s demand….that means that the 1,840,000 barrels per day global oil output shortage we had previously figured for September would now be revised to a shortage of 1,600,000 barrels per day….in like manner, the 240,000 barrels per day downward revision to 3rd quarter demand means that the shortage of 2,350,000 barrels per day we had previously figured for August would now be revised to a shortage of 2,110,000 barrels per day, and that the shortage of 1,930,000 barrels per day barrels per day we had previously figured for July would have to be revised to a shortage of 1,690,000 barrels per day…

At the same time, you can see in green that we’ve also circled a much more modest downward revision of 20,000 barrels per day to the second quarter’s demand, a quarter when there was also a shortage of oil being produced globally….based on that downward revision to demand, our previous estimate that there was a shortage of 740,000 barrels per day in June would now be revised to a 720,000 barrels per day shortage, the oil shortage of 2,070,000 barrels per day that we had previously figured for May would have to be revised to a shortage of 2,050,000 barrels per day, and that the 2,420,000 barrels per day global oil output shortage we should have figured for April would have to be revised to a shortage of 2,400,000 barrels per day…

Meanwhile, since there are no revisions that apply to the first quarter, the global oil output shortage of 810,000 barrels per day we had previously figured for March, the global oil output shortage of 1,820,000 barrels per day we had previously figured for February, and the global oil output surplus of 600,000 barrels per day we had previously figured for January would remain unchanged from our previous estimate…

With our estimates for all of the months of 2021 thus complete, we should be able to compute the global oil production shortfall for the year…based on the 12 monthly oil market reports that OPEC released over the past year, and the monthly revisions to the supply and demand figures therein, we find that the world was short 527,910,000 barrels of oil in 2021, which works out to a shortage of 1,446,300 barrels of oil per day….we’re still far from running out, however, because the quantities of oil being produced globally during the pandemic of 2020 still averaged over 3 million barrels per day more than anyone wanted….