OPEC+ producers agreed Oct. 5, 2022, to reduce crude oil production targets by 2 million b/d from previously stated targets beginning in November 2022. The US Energy Information Administration (EIA) expects that Saudi Arabia, Kuwait, and the United Arab Emirates (UAE) will account for most of OPEC’s share of the cut, the agency said in its latest Short-Term Energy Outlook (STEO), noting its production forecast for other OPEC members remains largely unchanged from its assessment made before the Oct. 5 announcement.
Total OPEC crude oil production in EIA’s forecast falls to 28.6 million b/d in fourth-quarter 2022 from an average 29.2 million b/d in this year’s third quarter, largely unchanged from last month’s STEO forecast. OPEC crude oil production in the forecast averages 28.9 million b/d in 2023.
Among the non-OPEC participants in OPEC+, the majority of the reductions in OPEC+ production will come from Russia, where EIA expects production declines will materialize as the result of Russia’s full-scale invasion of Ukraine and sanctions imposed on Russia, rather than the newly announced production cuts. EIA expects that Russia’s total liquids production will fall to an average 10.8 million b/d in fourth-quarter 2022 from an average 10.9 million b/d in third-quarter 2022, before falling further to an average of 9.3 million b/d for all of 2023. However, EIA noted the forecast is subject to significant uncertainty around the extent to which upcoming EU sanctions will impact trade flows and the ability for oil suppliers in Russia to find alternative shipping arrangements and buyers.
Meantime, EIA expects global oil inventory levels to begin to fall again in early 2023 after increasing by an estimated 800,000 b/d in third-quarter 2022. EIA expects total global oil inventories will decline by 1.2 million b/d in first-quarter 2023, after a forecast build of 200,000 b/d in fourth-quarter 2022. EIA also forecasts global oil inventories will fall by 300,000 b/d in 2023.
The Brent crude oil spot price averaged $93/bbl in October. EIA expects the Brent price will average near that price through first-half 2023. However, weakening global economic conditions, which could limit oil demand growth, create the potential for oil prices to end up lower than the forecast, EIA said. Nevertheless, higher-than-forecast oil prices could stem from supply disruptions resulting from the EU’s impending bans on the seaborne import of crude oil and petroleum products from Russia.
“Despite increasing concerns around weakening global economic conditions, we forecast that global oil consumption will outpace global oil production in 2023, which will contribute to increasing oil prices in second-half 2023,” EIA said. EIA forecasts the Brent crude oil price will rise to an average of $98/bbl in fourth-quarter 2023 from an average of $94/bbl in first-half 2023, averaging $95/bbl for all of 2023.