The extent of the oil surplus may become a big mystery in the market next year

According to the news of World Oil on November 17, if the forecasts of the world's large international energy forecasting agencies are to be believed, the oil market will enter a healthy state of oversupply
.

The scale of this shift — which will be crucial to the next move in crude prices — depends largely on what major producers have collectively failed to do again and again in recent months: produce
on volume.

The latest outlooks from the International Energy Agency (IEA), OPEC and the U.
S.
Energy Information Administration (EIA) all point to a narrowing of the global oil deficit in the current quarter and a surplus next year, provided that members of the OPEC+ Producer Alliance meet their production targets
under their supply agreements.

Deficit to surplus

The targets envisage an increase of 400,000 barrels
per day in OPEC's output until at least April.
By April, the benchmark for measuring production cuts will be moderately revised
in several member countries.
Earlier this month, OPEC+ rejected a request to raise oil prices in December, citing ample
market supply.

All three of the agency's forecasts seem to support this view, assuming that oil-producing countries can extract oil
as planned.

But this ability is questionable
.
Of the three, only the EIA forecasts OPEC production and believes OPEC production will be well below target levels by 2022
.
By contrast, OPEC analysts used target production levels
in their forecasts submitted to ministers earlier this month.

The October data suggest that EIA may be closer to that standard
than OPEC.
In its most recent monthly report, the producer organization published estimates of October production in its member countries
.
Production rose by just 136,000 barrels per day in September, less than a
fifth of the increase assumed in forecasts submitted to ministers at the end of October, the data showed.

This will have a significant impact
on the oil balance next year.
Based on EIA demand and production forecasts for non-OPEC countries, as well as OPEC+ member countries' production targets, global oil supply will exceed demand by 900,000 b/d in the first quarter of 2022, and oversupply is increasing
throughout the year.
But if we swap those targets for EIA's forecast of OPEC production, the picture is very different
.

The supply surplus in the first quarter has been effectively erased, with a small inventory increase in January offset
by further decreases in February and March.
The subsequent increase in global inventories would not exceed 1 million barrels per day, compared to an increase of 3 million barrels
per day in the fourth quarter of '22 in accordance with OPEC's target.

Revise requirements

Still, the three agencies believe that market tensions will ease
somewhat as global supply increases.

Oil demand forecasts were little changed from the previous month, with the IEA and EIA raising their forecasts for the current quarter the most, while OPEC cut its oil demand forecasts
for the current quarter and the next two quarters.
Non-OPEC oil supply from the IEA and EIA saw a similar increase, offsetting rising demand expectations in the fourth quarter of last year
.

For 2022, both the IEA and EIA raised their production forecasts for non-OPEC producers, while OPEC lowered its forecast for the first half of the year and raised its forecast
for the second half.

The net result of the adjustment to demand and non-OPEC supply forecasts is that all three agencies now believe that world demand for OPEC crude in 2022 is lower than the forecast
made a month ago.
Average cuts this year range from 100,000 barrels per day the IEA estimates to 160,000 barrels per day OPEC
thinks compared to last October's forecast.

This provides the basis for expectations of a shift from supply shortages to oversupply in the coming months, but the scale and duration of the oversupply will depend on OPEC+ countries' willingness and ability
to produce in line with their rising targets.
It's something
they haven't done in the last six months.