Opec projects higher crude oil demand, trims down output

LONDON: Opec on Tuesday forecast higher demand for its oil in 2018 and pointed to signs of a tighter global market, indicating its production-cutting deal with non-member countries is helping to tackle a supply glut that has weighed on prices.

In a monthly report, the Organisation of the Petroleum Exporting Countries said the world would need 32.83 million barrels per day (bpd) of Opec crude next year, up 410,000 bpd from its previous forecast.

Opec said inventories were falling and that an increase in the price of Brent crude for immediate delivery to a premium to that for later supplies, known as backwardation, raised hopes that a long-awaited rebalancing of the market is under way.

Shooting up demand

“This is due to the shooting up of demand for prompt-loading barrels and amid increasing sentiment that the oil market will rebalance over the next year with a major drawdown in crude and product stocks,” Opec said in the report.

“This first stirring of backwardation since oil prices were above $100 a barrel is seen as a sign of tightening supplies and strong demand.” Oil gained after the report was released, trading above $54 per barrel. Prices are still less than half their levels in mid-2014.

In a deal aimed to clear the supply glut, Opec is curbing output by about 1.2 million bpd, while Russia and other non-Opec producers are cutting by half as much, until March 2018.

Ministers are now discussing extending the pact by at least three months.

Opec in the report also said its oil output in August came in below the demand forecast as output fell by 79,000 bpd from July to 32.76 million bpd.

The figures mean Opec’s compliance with its output-cutting pledge stands at 83 percent, according to a Reuters calculation, down from 86 per cent initially reported for July but still high by Opec standards.

Meanwhile, an Opec-led supply cut deal is helping to rebalance the global oil market, Opec’s secretary-general said on Monday, and higher demand in the rest of this year should lead to further reductions in oil inventories. The Organisation of the Petroleum Exporting Countries and other producers, including Russia, are reducing crude output by about 1.8 million barrels per day until next March in a bid to reduce inventories and support prices.

“It is clear the rebalancing process is under way, supported by the high conformity levels of Opec member countries and participating non Opec countries,” Mohammad Barkindo in a speech.

Floating storage

Barkindo was in Oxford to attend an energy seminar. Oil inventories are coming down onshore, and oil held in floating storage has been declining since June, he said. As well as the supply cut, a rise in demand of close to 2 million barrels a day in the second half of the year relative to the first will help get rid of excess oil in storage.

“This boost in demand will contribute to further reductions in commercial inventories,” Barkindo said. Ministers are now discussing extending the supply cut for at least three more months beyond March, before Opec meets again in November.

The supply cut helped boost crude prices above $58 a barrel in January, but prices have since slipped back to around $54 as the effort to clear a supply glut has taken longer than expected.