Opec forecasts ‘somewhat bearish’ oil demand amid tight supply
REPORT SHOWS GROUP’S EFFORTS CAN PREVENT ANY SURPLUS THIS YEAR
Global oil markets face a “somewhat bearish” outlook for the rest of the year amid slowing economic growth and the long-running trade war, even though supplies will be tighter than previously thought, Opec said.
The Organisation of Petroleum Exporting Countries, which pumps about a third of the world’s oil, increased estimates for world demand this year and next, and lowered forecasts for production from its rivals. Nonetheless, its monthly report — which doesn’t typically give a view on prices — warned that the market may weaken.
That increases pressure on Saudi Arabia, which has shouldered most of the burden in output cuts aimed at bolstering oil prices amid faltering demand and a relentless flood of new shale supplies from the US.
Crude prices have fluctuated this week, following twists and turns in the clash between Washington and Beijing as President Donald Trump imposed steeper tariffs on Chinese goods and then touted further
negotiations to resolve the impasse. At just under $60 a barrel in London, crude is below the levels most Opec nations need to cover government spending.
A coalition of oil producers composed of Opec members and allies such as Russia has curtailed supply this year to try and keep global markets in balance. Riyadh has reduced output by far more than it initially promised, reporting to the Opec secretariat that it cut production again in July to 9.58 million barrels a day.
The report released by Opec’s research department yesterday indicated that the group’s efforts should be sufficient to prevent any surplus this year.
The global balance of supply and demand is tighter than it appeared a month ago. Opec raised its assessment of consumption for this year and next by 50,000 barrels a day, and trimmed projections for non-Opec supplies by 40,000 barrels a day for 2019 and by 90,000 a day for 2020.
As a result, even though oil inventories in developed nations have risen above average levels, global stockpiles should decline this quarter by an average of 2.1 million barrels a day. Opec is pumping about 29.6 million a day, compared with a daily requirement of 30.28 million.
Futures in focus
Nevertheless, the focus in crude futures markets remains squarely on the outlook for demand, which is being soured by the growing risk of recession and the protracted dispute between the US and China.
A Saudi official said last week that the kingdom had sounded out its partners on potentially stepping up their efforts and is open to all options. The Saudis, Russia and other key members of the coalition will meet to review their strategy in Abu Dhabi on September 12. “The outlook for market fundamentals seems somewhat bearish for the rest of the year, given softening economic growth, ongoing global trade issues and slowing oil-demand growth,” Opec said in the report. “It remains critical to closely monitor the supply-demand balance and assist market stability in the months ahead.”
■ Expected output from the Permian basin (in bpd) Expected daily output from Bakken next month
US oil output from seven major shale formations is expected to rise by 85,000 barrels per day (bpd) in September, to a record 8.77 million bpd, the US Energy Information Administration forecast in its monthly drilling productivity report.
The largest change is expected in the Permian Basin of Texas and New Mexico, where output is seen climbing 75,000 bpd to 4.42 million bpd in September, also an all-time high. That is the biggest increase forecast for the basin since April.
Output in North Dakota and Montana’s Bakken region is expected to edge higher by 3,000 bpd to a record 1.44 million bpd, the data showed.
Production increases in the Permian and Bakken have been at the forefront of a shale boom that helped make the United States the biggest oil producer in the world, ahead of Saudi Arabia and Russia.
Slowing gains
Output gains in the Permian, the country’s largest basin, had slowed as independent oil producers cut spending on new drilling and completions and focus more on earnings growth.
Still, majors are ramping up spending. Permian oil production had also surged beyond pipeline takeaway capacity, weighing on regional oil prices for over a year. But the start up of new pipelines, such as Plains All American Pipeline LP’s 670,000-bpd Cactus II pipeline system, are beginning to support prices there.
In the Niobrara, spanning Wyoming and Colorado, output is expected to rise by 12,000 bpd to a record 758,000 bpd.
US natural gas output was projected to increase to a record 81.6 billion cubic feet per day (bcfd) in September.
That would be up 0.7 bcfd over the August forecast, putting production from the big shale basins up for a fourth month in a row even though the number of rigs in each region has declined since the start of the year.