Clyde Rassel
(Reuters) – Two questions stand out after OPEC+’s decision to accelerate growth in crude oil production. Who buys the extra crude oil?
OPEC+ agreed to increase 548,000 barrels per day (BPD) in August at its weekend meeting. This increased from 411,000 bpd, which the group approved in May, June and July and approved 138,000 bpd in April.
The boost in production comes from eight members of the group from Saudi Arabia, Russia, the United Arab Emirates, Kuwait, Oman, Iraq, Kazakhstan and Algeria.
The August increase means that eight people will rewind the voluntary 2.2 million bpd 1919 million bpd that they imposed last year to support gross prices.
OPEC+ is sticking to a theme from recent communique, citing what is called “a stable global economic outlook and the foundation of current healthy markets” in a statement announcing the August increase.
However, the reality may not be as rosy as OPEC+ paint, with a growing soft demand from major consumers such as China, the world’s top oil importer.
China’s crude imports did not increase much in the first five months of the year. The official data is 0.3% (28,500 bpd), reaching 11.1 million bpd.
The growth rate will be engraved as data will be released for next week in June, with LSEG Petroleum Research expecting an import of 11.96 million bpd for the month, up from the tax function of 1,130 million bpd in June 2024.
China’s imports are likely to have been stronger in June, but the reason for this is not so bullish. The price was low when the cargo arriving in June was arranged, so the refiners may have been purchasing more crude oil than they would process.
Global benchmark Brent Futures hit its four-year low of $58.50 a barrel on May 5th, trending low since early April, the period when the arrival of cargo was purchased in June.
Due to weak prices, Asian oil imports purchased around 60% of the seaborne crude in June, the highest since January 2023, with LSEG estimated the arrival of 2865 million bpd.
With the above imports in June, Asia’s arrival in early 2025 increased by 620,000 bpd in the same period last year.
Coincidentally, this is roughly in line with the regional demand growth forecasts by the organisation of oil exporters, with the June monthly report of the group projecting demand growth of 630,000 bpd in 2025 in non-OECD Asia.
Price key
The question is whether there will be higher imports in Asia in the second half, or whether the momentum seen in June will be dissipated.
Many depend on price, as history suggests that when prices rise, importers like China and India tend to cut imports and run out of stockpiles.
The short surge in prices in mid-June was triggered by an Israeli attack on Iran, which the US later joined, so it would probably be enough for China to see low imports in August and perhaps September.
If imports rise in the fourth quarter, oil prices could fall to encourage purchases and inventory construction.
In that case, the ball is primarily in the OPEC+ court.
If the group begins to produce what the quota allows and actually exports this oil, the price may continue to soften, which may encourage purchases.
So far, according to a Reuters survey released on July 4th, the actual output appears to be delaying higher quotas.
Given that OPEC+’s biggest exporters are producers with the most reserve capacity and capacity to increase production, it depends on what Saudi Arabia does.
The views expressed here are those of the author, a Reuters columnist.
Share this:
