OPEC finally forecasts Russian crude output fall; faces pressure to ease market squeeze

OPEC on June 14 said it expects rising demand for its crude oil, forecasting robust global economic growth in the months ahead and projecting for the first time that Russia's production will fall year on year.

In its closely watched monthly oil market report, the producer bloc kept its forecast of world demand steady at 100.29 million b/d for 2022 from its May estimate -- basically back to pre-pandemic levels -- but lowered its estimate of non-OPEC supply to 65.74 million b/d, a drop of 230,000 b/d.

The revision was largely due to a downgrade in Russian liquids output, now estimated at 10.63 million b/d for 2022, a drop of 250,000 b/d from the May projection.

It is the first acknowledgment by OPEC that Russia, its key ally in a production agreement forged in 2017, will see a contraction in output year on year due to sanctions imposed by many Western countries over Moscow's invasion of Ukraine.

As a result, and factoring in some growth in OPEC NGLs output, the producer group now expects the "call" on its crude to average 29.15 million b/d for the year -- above the 28.508 million b/d it pumped in May, according to secondary sources.

The call on OPEC is calculated by subtracting non-OPEC liquids and OPEC NGLs output from total oil demand, and it represents how much crude the bloc would have to produce to achieve a balanced market that would not induce any draws or builds in inventories.

OPEC has consistently underproduced the call over the past two years, cooperating with Russia and nine other allies on a series of production cuts aimed at rescuing the market from its crash in the spring of 2020 due to the pandemic and a brief Saudi-Russia price war.

But with the onset of the summer driving season in the Northern Hemisphere and expected rebounds in Chinese demand as pandemic lockdown restrictions are eased, the OPEC+ alliance's production restraint could squeeze the market.

Platts, part of S&P Global Commodity Insights, assessed Dated Brent at $127.97/b on June 13, with the benchmark having hit a 14-year high of $137.64/b in early March as the Russian invasion of Ukraine escalated.

In its report, OPEC said the anticipated lifting lockdown measures could increase China's crude imports, while India imported a record high 5.1 million b/d in April as it bought up discounted Russian crude.

"Oil demand is forecast at healthy levels in the second half of this year," OPEC said in its report. "Economic momentum has been building, especially in the contact-intensive services sector, which includes travel and transportation, leisure and hospitality. This renewed activity is expected to lead into the summer holiday season of the Northern Hemisphere, supported by still-sufficient savings in advanced economies to be spent on pent-up demand."

Inflationary pressures

OPEC's production in May was down 239,000 b/d from April, the report showed, with big drops in Libya, Nigeria and Iraq.

Russian production is now forecast to contract 170,000 b/d on the year, according to OPEC's estimate.

The OPEC+ alliance on June 2 agreed to accelerate its collective production increases to 648,000 b/d each month for July and August, after months of rebuffing calls from the US, India, Japan and other key consumers to tame rising prices. But with many members unable to raise output due to technical problems, sanctions or instability, Saudi Arabia and the UAE are the only members that can contribute in any significant way.

However, OPEC warned that once the expected summer boom in demand ends, soaring inflation could weigh on the global economy, along with any pandemic flare-ups.

"Looking ahead, current geopolitical developments and the uncertain roll-out of the pandemic toward the end of the second half of the year continue to pose a considerable risk to the forecast recovery to pre-pandemic levels," OPEC said. "Inflationary pressures are likely to persist, and it remains highly uncertain as to when geopolitical issues may be resolved."

OPEC's monthly forecasts