OPEC on Wednesday cut its forecast for global growth in oil demand this year due to the coronavirus outbreak and said its output fell sharply in January as producers implemented a new supply-limiting pact.
In a report, OPEC said 2020 demand for its crude will average 29.30 million barrels per day (bpd), 200,000 bpd less than previously thought. OPEC pumped below that rate in January, suggesting a 2020 supply deficit.
The report could bolster the case for even more supply curbs by the Organization of the Petroleum Exporting Countries, which is considering whether to curb output further to offset slower demand. Oil has fallen 15 per cent this year to $55 a barrel, alarming producers.
“The impact of the coronavirus outbreak on China’s economy has added to the uncertainties surrounding global economic growth in 2020, and by extension global oil demand growth,” OPEC said in the report.
“Clearly, the ongoing developments in China require continuous monitoring and assessment.”
In the report, OPEC said world oil demand will rise by 990,000 bpd this year, down 230,000 bpd from the previous forecast. That is less than the reduction made by the U.S. government’s Energy Information Administration in its report on Tuesday.
Oil rose after the report’s release, trading near $56 a barrel. Some analysts are beginning to say the market may have bottomed out on hopes the virus impact will peak this month.
OPEC, Russia and other producers, a group known as OPEC+, have since Jan. 1 implemented a deal to cut output by 1.7 million bpd to support the market.
A technical panel that advises OPEC+ proposed last week a new cut of around 600,000 bpd. The producers are also considering bringing forward their next policy meeting to February from March 5-6.
OPEC has yet to make any announcement on an early meeting and Iran’s oil minister said on Saturday the pressure to reschedule the gathering had eased.
OPEC CUTS, RUSSIA PUMPS MORE
OPEC and its partners have been limiting supply since 2017, helping revive prices by clearing a glut that built up in 2014-2016 when producers pumped at will.
But higher prices have also boosted U.S. shale and other rival supplies. OPEC in the report trimmed its 2020 forecast for growth in non-OPEC supply to 2.25 million bpd, 100,000 bpd less than the previous forecast.
The slowdown in non-OPEC supply will help OPEC’s effort to manage the market. But non-OPEC output is still expected to grow at over twice the rate of world oil demand in 2020, presenting OPEC and its allies with a continuing challenge.
In January, OPEC over-delivered on its cuts, lowering supply by 509,000 bpd to 28.86 million bpd, according to secondary sources cited in the report, due to involuntary losses in Libya as well as deliberate cuts led by Saudi Arabia.
Russian output, however, increased. Preliminary data for liquids production in January showed slightly higher crude production of 20,000 bpd to average 11.49 million bpd, OPEC said.
The report suggests there would be a 2020 supply deficit of 440,000 bpd, if OPEC kept pumping at January’s rate and other factors remained unchanged, larger than the deficit suggested in January’s report.