In its latest oil market report released on March 14, OPEC revised downward its estimate of the amount of crude needed to balance the market. One reason for this is the resilience of Russian production in the face of sanctions. Despite an increase in its forecast for Chinese demand, OPEC believes it will not need to produce more until the second half of this year.
Russian production more resilient than expected
OPEC forecast a drop in Russian liquids production of 900,000 barrels per day in February. However, the March 14 report showed a smaller decline of 750,000 barrels per day due to higher than expected volumes in the first quarter. Non-OPEC oil production is expected to increase more than expected to 67.2 million barrels per day in 2023.
Chinese demand on the rise
Despite economic uncertainties related to the Covid-19 pandemic and inflation, Chinese oil demand is expected to increase by 710,000 barrels per day in 2023, up from 590,000 barrels per day last February. However, OPEC estimates that weakness in some Western economies will limit the growth of global oil consumption to 101.9 million barrels per day.
Caution is still required
The OPEC report indicates that uncertain economic conditions continue to warrant a cautious approach to managing oil production volumes. The Ministerial Monitoring Committee of nine OPEC member countries and Russia will meet on April 3 to discuss the state of the oil market.
Oil prices fall
The report was released as oil prices fell due to the collapse of Silicon Valley Bank and fears of a new banking crisis. Brent crude futures, which had exceeded $86/barrel a few days earlier, were trading at $79.09/barrel on March 14. OPEC producers are hoping for a robust economic recovery in China to boost oil demand, but Western sanctions against Moscow have so far kept most Russian oil export volumes intact.
