IEA: Saudi-Russian alliance proving formidable challenge for oil markets

Sept. 13, 2023
The Saudi-Russian alliance is proving a formidable challenge for oil markets, the International Energy Agency said in its September issue Oil Market Report.

The Saudi-Russian alliance is proving a formidable challenge for oil markets, the International Energy Agency (IEA) said in its September issue Oil Market Report (OMR).

After oil prices traded in relative calm during August, with volatility at multi-year lows, the decision by Saudi Arabia and Russia in early September to extend output cuts of a combined 1.3 million b/d through year-end triggered a price spike in North Sea Dated above $90/bbl to a 10-month high, IEA noted in the report.

As forecast, oil markets were already tightening and in August observed global inventories plunged by 76.3 million bbl, or 2.46 million b/d. The extension of output cuts by Saudi Arabia and Russia through the end of the year will solidify a substantial market deficit throughout fourth-quarter 2023, IEA said.

Global oil demand is expected to continue its growth trajectory in 2023, with an anticipated increase of 2.2 million b/d to reach 101.8 million b/d. This growth is primarily driven by a resurgence in Chinese consumption, as well as increased demand for jet fuel and petrochemical feedstocks, IEA said.

In 2024, dominance is expected to shift towards naphtha and LPG/ethane, particularly in China, contributing to a more modest overall increase of 990,000 b/d, reaching 102.8 million b/d. This shift reflects below-trend GDP growth and a structural decline in road transport fuel use in major markets.

Year-to-date, OPEC+ output has decreased by 2 million b/d, with overall losses mitigated by a significant increase in Iranian flows. Non-OPEC+ supply, on the other hand, has risen by 1.9 million b/d, reaching a record 50.5 million b/d by August. IEA expects global oil supply in 2023 to increase by 1.5 million b/d, with the US, Iran, and Brazil being the primary sources of growth.

In August, Russian oil export revenues surged, increasing by $1.8 billion to reach $17.1 billion, mainly driven by higher prices that more than offset lower shipments. Led by a decline in product shipments, total Russian oil exports decreased by 150,000 b/d last month to 7.2 million b/d, which is 570,000 b/d below the year-ago level. Shipments to China and India also declined, dropping to 3.9 million b/d from 4.7 million b/d in April and May, but still accounting for over half of total volumes.

Refinery margins reached an 8-month high in August as refiners struggled to keep up with oil demand growth, especially for middle distillates. Product cracks and margins reached near-record levels due to unplanned outages, feedstock quality issues, supply chain bottlenecks, and low stocks. Global refinery runs are projected to increase by 1.7 million b/d to 82.4 million b/d in 2023 and by 1.2 million b/d to 83.6 million b/d next year.

Global observed oil inventories fell by 76.3 million bbl in August, reaching a 13-month low. This decline was led by a substantial reduction in oil on water. Non-OECD oil stocks fell by 20.8 million bbl, with the largest draw occurring in China, while OECD inventories decreased by 3.2 million bbl. In July, OECD industry stocks increased by 26.7 million bbl to 2,814 million bbl, but remained 102.6 million bbl below their 5-year average.