Oil supply is expected to increase considerably during the course of 2022, providing tankers with a much needed support. In its latest weekly report, shipbroker Gibson said that “the decision by OPEC+ to raise output by another 400kbd in March came as little surprise to the oil market, which had largely priced in further modest output increases from the group. It took ministers just 16 minutes to sign off on the 400kbd uplift, yet even with this, the fact remains that the wider OPEC+ group pumped 790kbd below target in December. Yet despite these shortcomings, the International Energy Agency (IEA) calculates that if OPEC+ maintains its current strategy through this year, then oil supply is primed for a 6.2mbd increase in 2022, which if delivered, would represent the largest ever annual increase in oil supply”.

According to Gibson, “this year, OPEC+ members are projected to contribute 4.4mbd to global supplies, but this task is not without its challenges. In recent months, OPEC+ production has failed to achieve planned output with Nigeria and Angola collectively pumping 740kbd below their combined target in December, accounting for 94% of the group’s underperformance. Whilst these countries may be able to raise output marginally, they are unlikely to be a major contributor of OPEC+ production growth in the short term. Further, the current quota framework does not allow for underproduction in one country to be compensated by another member, which could prevent OPEC+ from hitting their collective output target. However, whilst production growth in West Africa might face some headwinds, in the Middle East, most major producers have ample spare capacity to raise output. Indeed, Saudi Arabia, Kuwait, the UAE and Iraq all have sustainable spare capacity, and will all receive a quota boost in May totalling 1.13mbd, giving the potential for a significant increase in regional crude exports, should these producers choose to do so. Outside of the core OPEC group, Russia should attain pre pandemic output this year and also receives a quota boost of 500kbd in May, contributing another chunk to the oil supply picture later in 2022”.

“The next major source of supply growth comes from the United States, where production is forecast to grow by 1mbd. This is evidenced by the higher Capex budgets of Exxon and Chevron which have announced plans to raise Permian output by 25% and 10% respectively in 2022. Further south, Brazil will add 150kbd, whilst ExxonMobil could start production at Guyana’s FPSO Liza Unity this month. Liza Unity will gradually ramp up to its capacity of 220kbd and is twice the size of the existing FPSO Liza Destiny”, the shipbroker said.

Gibson added that “the IEA’s forecast does seem optimistic and has a number of key dependencies, but nevertheless paints a positive demand story for tankers. Given the increase of 6.2mbd sits above the IEA’s projection of a 3.2mbd demand increase, supply is once again expected to exceed demand later this year, suggesting countries will build stocks. However, the current structure in oil futures and high flat prices will deter stock building. Indeed, whilst the IEA see OPEC+ output growing by 4.4mbd, their 2022 ‘call on OPEC+ output’ sits just 1.8mbd higher than last year, suggesting actual demand for OPEC+ crude may be lower than the intended supply increases. However, none of these figures account for Iran which is perhaps the biggest sensitivity (aside from developments in Ukraine). A potential return of Iranian supply would provide upside to Middle East exports, whilst also likely to accelerate scrapping activity. Overall, tankers can expect a healthy increase in oil supply during 2022, even if the latest forecasts prove to be too optimistic, whilst arguably, the geopolitical stage is the tensest in decades”, the shipbroker concluded.

Marex Media