Oil price up but more OPEC+ output increases and Iran exports unlikely this year

  • Oil price up 2% after OPEC+ maintains its trajectory for output; obviously positive for exporters (Russia, Saudi et al)
  • If no other changes, global demand and supply will be up yoy by 5.5 and 4.6mbpd in Q4 21; 0.9mbpd supply shortfall
  • But more Iran exports, OPEC+ easing, and inventory drawdown can easily overfill that gap even with stable demand outlook
Oil price up but more OPEC+ output increases and Iran exports unlikely this year

The oil market is relieved that on 1st June OPEC+ stuck to its existing trajectory for easing output restraint and that there does not appear to be an imminent signature of a new Iran Nuclear Deal. Obviously, the latest upward move in oil price is positive for exporters in emerging markets. Oil price (Brent) above US$70 compares with fiscal break-evens nearer US$45 for Russia and US$65 for Saudi.

OPEC+ output cut response to 9.5mbpd demand hit in 2020

OPEC's forecasts for Q4 21 imply that global demand and supply will increase, compared to a year earlier, by 5.5 and 4.6mbpd, respectively. This leaves a supply shortfall of 0.9mbpd into which, potentially, new Iran exports, additional OPEC+ output, and any further inventory drawdown need to fit. All of this, of course, assumes no significant hit to existing demand forecasts from fresh bouts of Covid-19 disruption.

Iran exports near zero versus 2018 peak of 2.5mbpd

The oil market is assuming this is likely but, as always, the margin for error remains a very fine one. At a minimum, in the final months of this year, there is unlikely to be room for both significant new Iranian exports AND significant new OPEC+ volumes (after the currently agreed increases are completed by the end of June).

Significant Iran exports and OPEC+ volumes unlikely in 2021

Oil importers and exporters in emerging markets

Oil exposure across emerging and frontier markets

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