RHB Research (RHB) cut their average Brent crude oil price for 2023 future to USD81 per barrel as global oil demand is estimated to grow by 2 thousand barrels per day this year, thereby driving the market to a theoretical deficit of 0.5-0.6 thousand barrels per day in second half 2023.
“We believe OPEC+ is ready for more severe production cuts if demand weakens, while US production is likely to remain stagnant in the near term,” said RHB in the recent Regional Sector Update Report.
RHB also lowered their quarter three 2023 and quarter four 2023 projections to USD80 per barrel and USD85 per barrel, largely premised on stronger fundamentals as a result of higher demand.
Global oil demand is estimated to grow by 2 thousand barrels per day this year, which will drive the market to a theoretical deficit of 0.5-0.6 thousand barrels per day in the second half 2023. RHB still expects a balanced market, with an average theoretical deficit of 0.1 thousand barrels per day in 2023.
In the medium term, the International Energy Agency (IEA) is projecting global oil demand to grow from 99.8 thousand barrels per day in 2022 to 105.7 thousand barrels per day in 2028.
It expects that, from 2024 onwards, global oil demand growth will fall below 1 thousand barrels per day and further moderate to lower than 0.5 thousand barrels per day in 2027-2028.
This is premised on the assumption that oil demand for gasoline, road transport and total transported are projected to peak in 2023, 2025 and 2026.
“While it will take some time for the market to get past the negative sentiment arising from macroeconomic concerns and uncertainties, we believe OPEC+ is ready for more severe production cuts – evidenced by the recent announcement of the extension of voluntary cuts by Saudi Arabia and Russia through August,” said RHB.
Note that current oil prices are trading below the International Monetary Fund’s (IMF) estimated fiscal breakeven level of USD80.90 per barrel.
This is rather a tall order, in our view, for U.S. to achieve average U.S. Energy Information Administration’s 12.6 thousand barrels per day projection of 2023, which implies an average production of 12.9 thousand barrels per day in the second half 2023.
RHB sees a higher possibility for a stagnation in shale oil production in the near term, especially when the rig count is on a downtrend.
