Opec expects weaker demand for its crude next year as rivals surge
Opec is under intense pressure right now from consumers to ease prices by pumping more crude, but for 2019 it sees a more doubtful picture.
The group cut its estimate for global demand for its crude next year due to weakening economic growth and higher output from rivals, notably US shale drillers. The world will need almost 900,000 fewer barrels from the group each day in 2019 – equivalent to Libya’s average output this year.
The weaker outlook comes as pressure is increasing on the Organization of Petroleum Exporting Countries and its allies to pump more to offset the impact of looming US sanctions on Iran and Venezuela’s collapsing oil industry. In addition to tweets from President Donald Trump demanding action, Opec secretary-general Mohammad Barkindo said yesterday that India has written to the group expressing its discomfort with the current market. “There is no cause for alarm,” Barkindo said at the Oil and Money conference in London. Opec and its allies “are ready and willing to continue to make sure that the market remains well supplied.”
The group’s daily production rose by 132,000 barrels in September to 32.76mn. While Iran’s output fell by 150,000 bpd and Venezuela lost 42,000 bpd, Saudi Arabia and Libya more than offset the decline.
Still, Opec’s monthly oil market report provided some reasons to question the sustainability of the rally in crude futures to four-year highs last week.
The group reduced its estimates for the expansion in global consumption in 2018 and 2019, citing slowing economic activity in emerging markets. Demand growth of 1.54mn bpd this year will slow to 1.36mn next year. At the same time, it added 200,000 bpd to its estimate for non-Opec supply this year as the US, Canada, Kazakhstan and Brazil grow faster than expected.
Stockpiles of crude and refined products in industrialised countries rose by 14.2mn barrels in August, a second consecutive monthly increase. The outlook for supply and demand in 2019 indicates that inventories could continue to rise, Barkindo said.
Oil prices could fall next year as the “fear factor” that’s currently gripping the market subsides, Ian Taylor, chairman of the world’s largest independent oil trader Vitol Group, said in an interview with Bloomberg television on Wednesday.
Opec again sought to reassure markets after one of its biggest customers complained about the pain of high prices.
“There is no cause for alarm,” Opec secretary-general Mohammad Barkindo said yesterday, adding that India had sent a letter bemoaning the state of the oil market. While insisting supplies are sufficient, he neglected to specify how much extra production Opec intends – or is able – to pump, an omission that’s undermining its effort to calm prices.
Opec nations and its allies with spare capacity have given their assurance that “they are ready and willing to continue to make sure that the market remains well supplied,” Barkindo said at the Oil & Money conference in London. The group is keen to assuage any fears among its customers, and will hold talks with India on October 17, he said.
Crude surged to a four-year high earlier this month on concern US sanctions on Iran, along with chronic supply losses in Venezuela, could lead to a shortage. Emerging economies, most notably India, are bearing the brunt of the rally, which comes when they’re already contending with currency depreciation and the fallout from trade disputes.
Saudi Arabia, the Organization of Pe- troleum Exporting Countries’ top producer, and ally Russia have signalled they’re doing their bit to mitigate losses – pumping an extra 1mn bpd following their June deal to boost production. But traders are worried the Saudis aren’t act- ing quickly enough – or may lack the capacity – to fill a shortfall.
The market balance may be “fragile” but that’s not a result of fundamentals, Barkindo said. Opec sees a possible rebuild of oil stockpiles next year, he said, conceding that it remains “very concerned” about the level of spare production capacity following years of under-investment.
The oil-market balance is continually being tested, but prices have reacted to perceptions of scant supply, not real shortages, he said.
The 25 countries in the coalition of Opec and non-members – known as Opec+ – are still working on turning their ad-hoc alliance into something more permanent. Opec representatives, known as governors, will discuss the framework when they meet on October 23 in Vienna, while officials from non-Opec will visit the Austrian capital for follow-up talks on November 7. The coalition aims to have a more detailed plan by the time ministers meet in December.
“We are now gradually but steadily seeing the brighter path ahead,” Barkindo said. That’s “despite some of the bumps, despite some of the occasional clouds that have gathered.”
Opec cut its estimate for global demand for its crude next year due to weakening economic growth and higher output from rivals, notably US shale drillers
The Opec logo is seen at its headquarters in Vienna. Opec nations and its allies with spare capacity have given their assurance that “they are ready and willing to continue to make sure that the market remains well supplied,” secretary-general Mohammad Barkindo said at the Oil & Money conference in London.