The agency also noted that OECD members consumed less oil than previously expected, prompting the ILO to revise its demand outlook for the year by 260,000 bpd from last month’s OMR to a total of 99.4 million bpd. At the same time, the organization reported steady and significant production increases during the first quarter of the year, noting that producers outside OPEC led the way. Whenever production growth is driven by non-OPEC producers, it is worth watching OPEC even more closely than usual for its response. This answer has not yet come, but the cartel itself is also revising down its demand outlook for this year. And it revises it down a lot more than the ILO. Global oil demand was set to be 480,000 bpd lower than previously expected, OPEC said in the latest edition of its Monthly Oil Market Report. The cartel cited slower economic growth due to the war in Ukraine as one reason for the review and Covid-related lockdowns in China as another reason. In terms of supply, the ILO seems to be completely calm. After sounding the alarm about the possible loss of 3 million barrels of Russian oil exports due to Western sanctions, the agency now announced that the coordinated release of a total of 240 million barrels of crude oil, of which 180 million barrels would be released by the United States, loss of Russian supply. It seems that the IOC assumes that the loss of Russian supply will be temporary – just as the effect of the release of reserves will last only for as long as the release, if not less. And OPEC may still be an unpleasant surprise to IEA members who are ready to use their own strategic reserves to normalize benchmark prices. Earlier this month, OPEC met with representatives of the European Union only to tell them it would not intervene to help if Russian oil exports were completely shut down. “We could see the loss of more than 7 million barrels per day (bpd) of exports of Russian oil and other liquids, resulting from current and future sanctions or other voluntary actions. “Given the current outlook for demand, it would be almost impossible to replace a loss in volumes of this magnitude,” said Cartel Secretary-General Mohamed Barquido. However, as demand forecasts are revised, OPEC may simply decide to revise its production plans. With millions of Russian oil off the (official) picture and a very small chance of returning Iran’s barrels to the present, it is up to OPEC and the US to fill the gap. If, that is, they want. US producers seem to be embracing the idea of boosting production, with prices so high that their profit margins are thick enough to motivate more drilling. OPEC, meanwhile, increased its production by just 67,000 bpd last month. This is because some OPEC members saw a decline in their oil production instead of growth, but Saudi Arabia fell sharply from its production quota. At the same time, OPEC has revised upwards its forecasts for US oil production for this year, and history shows that when US oil production increases, OPEC is not a happy cartel and is taking steps to address this growth. Now, with this expectation of increased output combined with expectations of slower demand growth, OPEC’s response may only be a matter of time. As for the nature of the possible reaction, it is not difficult to guess. At the moment, OPEC is selling its oil at prices we have seen in recent years. Buyers have few alternatives to Western sanctions on Russia and US sanctions on Venezuela and Iran. It’s a sellers market. However, news of Covid’s resurgence in China has raised suspicions that the market is about to be overturned. Ultimately, China is the world’s largest importer in absolute volumes and imports have already fallen sharply due to lockdowns. If China needs less oil, less oil should be available. Europe seems to be emerging as a major customer for OPEC oil at the moment, but it would be temporary as the EU seeks to wean itself off Russian hydrocarbons by replacing them with hydrocarbons elsewhere. Europe is not a long-term growth market for OPEC oil and therefore, to put it bluntly, it is not a major market for the cartel. This is especially true for the two OPEC producers who have the surplus capacity to significantly increase their production. Thus, if falling oil expectations continue to intensify, given how the coronavirus is spreading in China and what the EU is doing about Russian oil, we may well see OPEC revising its production-growth agreement with Russia and its other partners in OPEC + before the end of this year. By Irina Slav for Oilprice.com More top readings from Oilprice.com: