Opec+ throws open the floodgates, vows extra barrels in August
LONDON, 23 days ago
Following the first meeting since the escalation of Israel–Iran hostilities, Opec+ signalled its intent to push supply more aggressively in August (500 kb/d) than the market had expected, and is now approaching a full unwind of the voluntary 2.2 mb/d curtailment, according to leading commodity market intelligence firm Sparta.
At first glance this may seem a curious move if one looks only at flat price, which has been treading water in the mid-to-high $60s since Middle-East tensions eased in late June, it said.
However, many other market indicators are flashing yellow warning signs on supply, implying that flat price has not responded to tightening conditions beneath the surface. Both light and heavier FOB premia are surging into July; notably, medium/heavy premia are hitting levels not seen since 2022, it stated.
"This may be the most direct link to Opec+ opening the flood-gates – bidding for medium/heavy grades has strengthened on the back of robust middle-distillate cracks and supply outages elsewhere on the heavier side of the market," remarked John Coleman, an expert at Sparta.
More general prompt-balance indicators are also flashing warnings of broad supply tightness, with calendar spreads remaining elevated and DFLs approaching peak Israel–Iran conflict levels, it stated.
The August supply boost from Opec+ coincides with outages in Ecuador of unknown duration, after Petroecuador declared force majeure owing to pipeline issues, he said.
This has already strangled Ecuadorian production by an estimated 133 kb/d at a time when heavy material is evidently in short supply in the USGC.
Broad tightness in heavier material is most evident in very healthy distillate margins and an apparent inability to build inventory despite crude runs seasonally peaking.
A solver here could be the incremental heavier supply hitting the market in August, as well as the end of Saudi Arabia’s summer-burn season, which should boost export availability, stated Coleman, a seasoned crude oil trader with deep expertise across global markets.
While that sequence could cool diesel pricing and medium/heavy crude premia into autumn, we have a classic set-up for a major market shock in the interim: hurricane season is spinning up in the USGC and does not peak until September, he noted.
Any major storm making landfall in Louisiana (potentially knocking out upwards of 1 mb/d of GoM crude production and >1 mb/d of refining capacity) or in Houston/Beaumont (>2 mb/d of refining capacity) could trigger major repricing in distillates, medium-sour crudes, or both, said Coleman.
Opec+ may be sending in the cavalry with this August supply boost, but the market remains in a precarious position until those barrels saturate the system, he added.
