WTI consolidates above $81.00 as OPEC+ officials fret about possible oil market surplus in 2022

• WTI is consolidating above $81.00 ahead of US data and private US inventory numbers.
• The tone of OPEC+ officials is becoming increasingly concerned regarding the oil market’s demand/supply balance in 2022.

Despite a pick up in oil-complex relater newsflow on Tuesday, oil prices have seen broadly consolidative trade since the entrance of European market participants and ahead of the US open. WTI front-month futures contracts rose back above $81.00 per barrel at the start of the Asia Pacific session and have since been consolidating to the north of this level. At present, WTI is trading in the $81.30s with modest on-the-day gains of about 50 cents or just over 0.5%. Broader market sentiment can be described as upbeat (European equities are up across the board after a solid Asia session handover) in wake of the positive tone of Tuesday’s talks between US President Joe Biden and China President Xi Jinping. This is likely helping to keep risk-sensitive crude oil markets underpinned for now.

In terms of the crude oil-specific newflow so far on Tuesday; the International Energy Agency (IEA) released its monthly oil market report and left its estimates for global oil demand growth in 2021 and 2022 unchanged. The agency forecast that Brent would average $79.40 in 2022 (about 4.0% below current levels) as a result of higher prices incentivising countries, such as the US to boost oil output. That said, the report said US oil output wasn’t expected to recover to pre-pandemic levels until the end of 2022. On Monday, London-based energy intelligence provider Rystad Energy said it expected US shale to return to its pre-pandemic output levels of 8.68M barrels per day.

The theme of high prices encouraging higher output is not going unnoticed by OPEC+. The Secretary-General of the cartel, Mohammed Barkindo, said on Tuesday that he expected oil markets to enter a surplus (i.e. global supply higher than global demand) by December. This echoed concerns voiced by the UAE oil minister a day earlier that markets could be in a surplus by Q1 2022. Barkindo said that OPEC+ needs to be “careful” going forward. Whilst the Russian oil minister was on the wires on Tuesday saying it remains too soon to predict the outcome of next month’s OPEC+ meeting, signs are growing that the cartel may be inclined to slow the pace of output hikes. This could remove some downside risk for oil prices that result from increasingly bearish 2022 supply forecasts.

In the meantime, commodity analysts note that demand remains strong and markets remain in a deficit. The CEO of Trafigura said on Tuesday that global oil markets “remain very tight” and “heavily backwardated” as demand continues to recover back to its pre-pandemic levels. News also broke on Tuesday that Russian crude grades were selling in Asia markets at their highest premium versus spot prices in over 22 months, supported, according to traders cited by Reuters, by robust demand and firm refining margins. Looking ahead, focus in oil markets is on US macro data (Retail Sales at 1330GMT and Industrial Production at 1415GMT) and weekly private US inventory data at 2130GMT.