OPEC’s latest Monthly Oil Market Report (MOMR) came with bullish figures reflecting the strong market fundamentals but its feature article yielded bearish outcomes. OPEC’s latest MOMR highlighted that oil inventories declined in April to 26 million barrels below the five-year average.
While the MOMR figures show that the global glut has ended, the first sentence in the MOMR’s feature article is what most market analysts have quoted: “Recent developments in the oil market have led to pronounced uncertainty about the second half of the year.”
How can a sentence contradict the facts of an entire report? The MOMR is produced monthly to provide clear guidance to all stakeholders in the oil industry and beyond. Its wording carries inferences and directions, so care must be taken in every statement.
The first sentence in the feature article generated uncertainties. But then the remainder of the paragraph highlighted strong market fundamentals such as citing: “ICE Brent averaging above $70/bbl for the first time since 2014.” There were mentions of draws in crude oil inventories, healthy oil demand and geo-political developments to support the “rising trend.” These facts were a total contradiction with the opening sentence and the reported figures.
Even more startling, at the conclusion of the paragraph, MOMR denied all the market developments stating: “Recently, crude oil futures have lost some momentum amid uncertainty as traders prepare for potentially more supply returning to the market.” The paragraph is completely confusing! In reality, aren’t the market worries about a shortfall in supplies amid US sanctions that limit Iranian exports coupled with the potential for more declines in Venezuelan oilproduction.
Moreover, stronger demand is forecasted due to a robust global economy that has helped remove the glut, but OPEC’s MOMR has left its global demand growth estimate this year unchanged at 1.65 million barrels per day without reflecting the economic growth, which is exactly the same as the previous month’s report.
Next week, the world will be waiting for the outcome of the OPEC meeting in Vienna. It’s anticipated that OPEC will alter its strategy and ease output cuts to compensate for supply shortages. The 174th OPEC meeting will have a hectic agenda, addressing many challenges, not least of which are the geopolitical tensions involving some market participants.
Questions remain however, on why OPEC’s MOMR is being cautious on the future oil outlook, despite the end of the global glut? Shouldn’t the MOMR help OPEC set the stage for a smooth meeting highlighting the success of OPEC’s output cuts agreement and the unprecedented compliance, as this is the time to focus on reaping the fruits of this success and rather than focusing on imaginary market uncertainties.
In conclusion, while the global market hungers for additional supplies to offset other shortfalls, why has OPEC highlighted demand uncertainty before such a critical meeting?
Dr. Faisal Mrza
Energy and Oil Marketing Adviser (Former OPEC / Saudi Aramco)