Investec Risk Solutions


Oil Market Scenario Analysis


Friday, 4 November 2022

This analysis uses historical and forecast data from the US Energy Information Administration's (EIA) latest monthly report along with the International Energy Agency's (IEA) report as an alternative demand outlook, to look at the implications of a number of scenariosAt its meeting on 18th July OPEC+ (click here) expressed a desire to eliminate cuts relative to its original crude oil output baseline and to revise the baseline up from May next year (click here for table). The press release talked of an "endeavour" to do this by the end of September 2022 and to do so by adding a maximum of 400 kb/day per month. It was stressed however, that OPEC+ retain flexibility, via its monthly meetings, to revise its plan as conditions develop. In addition, OPEC+ has often talked about the importance of targeting an OECD commercial inventory figure at around the 5-year average Consequently, it is assumed that OPEC+ will increase output in-line with its stated plan provided inventories are not above the 5-year average. If they do exceed that level, OPEC+ is assumed to cut output by not more than 400 kb/day per month In which case, whether OPEC+ is able to meet its planned output increases will depend on assumptions about demand and non-OPEC+ supply. The degree to which OPEC+ output falls short of its preferred path could act as a measure of how disaffected its members may become and consequently indicate the risk of discipline breaking down and output increasing. Alternatively, prices would need to follow a path that disincentives non-OPEC+ production. In other words, large OPEC+ shortfalls would tend to indicate a risk of downward pressure on prices.

The scenarios are as follows:

  1. EIA balanced - uses EIA demand and US supply forecast while Iranian and other sources, remain unchanged from June levels
  2. IEA balanced - uses IEA demand, EIA US supply forecast while Iranian and other sources, remain unchanged from June levels
  3. EIA stronger supply - like 1 but, Iranian sanctions lifted in Q1-22 and other sources of crude build slowly
  4. IEA stronger supply - like 2 but, Iranian sanctions lifted in Q1-22 and other sources of crude build slowly

Jul-20Jan-21Jul-21Jan-22Jul-22−101234S1S2S3S4OPEC+ Shortfallmb/daySource: Investec, EIA, IEA
Jul-20Jan-21Jul-21Jan-22Jul-22−5051015S1S2S3S4Supply versus Demand BalanceSurplus mb/daySource: Investec, EIA, IEA
Jul-20Jan-21Jul-21Jan-22Jul-222600270028002900300031003200330034003500S1S2S3S4OECD 5yr AverageOECD Inventorymillions barrelsSource: Investec, Bloomberg
Jan-20Jul-20Jan-21Jul-21Jan-22Jul-22859095100EIAIEADemand Forecastsmb/daySource: Investec, EIA, IEA
OPEC+ current and historic output compared to current baseline and May22 production baselines

  Current Max 2019 Ave Current Baseline May 22 Baseline Current Baseline - Current Output May 22 Baseline - Current Output Current Baseline - 2019 Ave May 22 Baseline - 2019 Ave
Sum 42.08 46.19 43.45 43.85 45.48 1.78 3.41 0.40 2.03
Russia 10.88 11.68 11.47 11.00 11.50 0.12 0.62 -0.47 0.03
Saudi Arabia 10.80 11.60 9.78 11.00 11.50 0.20 0.70 1.22 1.72
Iraq 4.55 4.80 4.70 4.65 4.80 0.10 0.25 -0.04 0.11
UAE 3.08 3.80 3.14 3.17 3.50 0.09 0.42 0.03 0.36
Kuwait 2.81 3.00 2.72 2.81 2.96 -0.00 0.15 0.09 0.24
Mexico 1.90 2.60 1.92 1.75 1.75 -0.14 -0.14 -0.16 -0.16
Kazakhstan 1.41 2.08 1.97 1.71 1.71 0.30 0.30 -0.26 -0.26
Angola 1.18 1.81 1.42 1.53 1.53 0.35 0.35 0.10 0.10
Oman 1.04 1.12 0.98 0.88 0.88 -0.15 -0.15 -0.10 -0.10
Algeria 1.02 1.05 1.02 1.06 1.06 0.04 0.04 0.04 0.04
Nigeria 1.01 1.82 1.65 1.83 1.83 0.82 0.82 0.18 0.18
Azerbaijan 0.67 0.88 0.77 0.72 0.72 0.05 0.05 -0.06 -0.06
Malaysia 0.66 0.79 0.71 0.59 0.59 -0.06 -0.06 -0.12 -0.12
Congo 0.29 0.36 0.32 0.33 0.33 0.04 0.04 0.00 0.00
Gabon 0.19 0.22 0.20 0.19 0.19 -0.00 -0.00 -0.01 -0.01
Bahrain 0.18 0.23 0.21 0.20 0.20 0.03 0.03 -0.00 -0.00
South Sudan 0.16 0.18 0.16 0.13 0.13 -0.03 -0.03 -0.03 -0.03
Brunei 0.09 0.14 0.12 0.10 0.10 0.01 0.01 -0.02 -0.02
Equatorial Guinea 0.09 0.16 0.12 0.13 0.13 0.04 0.04 0.01 0.01
Sudan 0.08 0.12 0.07 0.07 0.07 -0.00 -0.00 0.00 0.00

Source: Investec, EIA, IEA

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