‘Market can absorb more oil production’

GLOBAL oil demand is set to stay strong in the second half of this year, an Opec technical panel forecast this week, suggesting the market could absorb extra production from the group.

Opec will meet on Friday to decide output policy amid calls from major consumers such as the US and China to cool down oil prices and support the global economy by producing more crude.

Opec’s de facto leader, Saudi Arabia, and non-member Russia have proposed gradually relaxing production cuts – in place since the start of 2017 – while Opec members Iran, Iraq, Venezuela and Algeria have opposed such a move.

Three Opec sources told Reuters that a technical panel – the organisation’s economic commission – met on Monday to review the market outlook and will present it to member countries’ oil ministers later in the week.

“If Opec and its allies continue to produce at May levels, the market could be in deficit for the next six months,” one of the sources said.

Another source said: “The market outlook in the second half is strong.”

Some countries, including Algeria, Iran and Venezuela, said at the panel meeting that they still opposed an output increase, one of the sources said.

Russia and Saudi Arabia have proposed that Opec and non-Opec countries increase production by 1.5 million barrels per day (bpd), Ecuador’s oil minister Carlos Perez said on Monday.

The move would effectively wipe out existing production cuts of 1.8 million bpd, which have helped to rebalance the market in the past 18 months and lifted oil prices to nearly $80 (R1 100) per barrel from as low as $27 in 2016.

“There are other countries that do not want to reduce the cuts. It’s going to be a difficult, a tough meeting,” Perez said upon arriving in Vienna, where the 14-member Opec is based.

Opec’s second- and third-largest producers, Iraq and Iran, have said they would oppose output increases on the grounds that these would breach previous agreements to maintain cuts until the end of the year.

Both countries would struggle to increase output. Iran faces renewed US sanctions that will impact its oil industry, and Iraq has production constraints. – Reuters