Opec ex­pects weaker de­mand for its crude next year as ri­vals surge

Gulf Times Business - - FRONT PAGE -

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.

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