OPEC on Wednesday cut its forecast for growth in world oil demand in 2020 owing to an economic slowdown, an outlook the producer group said highlighted the need for continuing efforts to prevent a new glut of crude.
In a monthly report, the Organization of Petroleum Exporting Countries said oil demand worldwide would expand by 1.08 million barrels a day, 60,000 b/d less than previously estimated, and indicated the market would be in surplus.
The weaker outlook amid a U.S.-China trade war and Brexit could press the case for OPEC and its allies to maintain or adjust their policy of cutting output. Iraq said ministers would on Thursday discuss whether deeper cuts were needed.
OPEC, in the report, lowered its forecast for world economic growth in 2020 to 3.1 per cent from 3.2 per cent and said next year’s increase in oil demand would be outpaced by “strong growth” in supply from rival producers such as the United States.
“This highlights the shared responsibility of all producing countries to support oil market stability to avoid unwanted volatility and a potential relapse into market imbalance,” the report said.
OPEC, Russia and other producers have since Jan. 1 implemented a deal to cut output by 1.2 million b/d. The alliance, known as OPEC+, in July renewed the pact till March, 2020, and a committee reviewing the pact meets on Thursday.
Oil prices pared an earlier gain after the report was released to sit just below US$63 a barrel. Despite the OPEC-led cut, oil has tumbled from April’s 2019 peak above US$75, pressed by trade concerns and an economic slowdown.
The report said oil inventories in industrialized economies fell in July, a development that could ease OPEC concern over a possible glut.
Even so, stocks in July exceeded the five-year average – a yardstick OPEC watches closely – by 36 million barrels.
In Canada – a non-OPEC oil exporter – the report says demand is expected to be up slightly in 2020 compared with 2019, which began with five months of stagnant growth followed by solid growth in June.
It also says demand for crude in the United States, a major market for Canada, is expected to grow 1 per cent in 2019, but that’s down from the prior estimate of 1.05 per cent. Projected 2020 U.S. demand growth is 0.7 per cent.
Tim McMillan, president and chief executive of the Canadian Association of Petroleum Producers, said in an interview that their problem hasn’t been lack of demand, but Canada’s inability to deliver oil and gas due to insufficient pipeline capacity.
“It’s a self-created problem and we need to get new pipe in the ground [to go] south, west and east,” Mr. McMillan said in a phone interview. “I hope it’s an election issue in every part of Canada.”
OPEC and its partners have been limiting supply since 2017, helping to clear a glut that built up in 2014-2016 when producers pumped at will, and revive prices.
The policy has given a sustained boost to U.S. shale and other rival supply, and the report suggests the world will need less OPEC crude next year.
Demand for OPEC crude will average 29.40 million b/d in 2020, OPEC said, down 1.2 million b/d from this year.
OPEC said its oil output in August rose, however, by 136,000 b/d to 29.74 million b/d according to figures the group collects from secondary sources. It was the first increase this year. Saudi Arabia, Iraq and Nigeria boosted supply.
Top exporter Saudi Arabia told OPEC that the kingdom raised August output by slightly more than 200,000 b/d to 9.789 million b/d. Saudi Arabia continues to pump far less than its quota of 10.311 million b/d.
Thanks in part to Saudi restraint, producers are still overcomplying with the supply-cutting deal. Losses in Iran and Venezuela, two OPEC members facing U.S. sanctions, have widened the supply reduction. August’s increase, however, puts OPEC output further above the 2020 demand forecast.
The report suggests there will be a 2020 supply surplus of 340,000 b/d if OPEC keeps pumping at August’s rate and other things remain equal, more than the surplus forecast in last month’s report.
With files from The Canadian Press