OPEC on Wednesday pointed to a small deficit in the oil market next year due to restraint by Saudi Arabia even before the latest supply pact with other producers takes effect, suggesting a tighter market than previously thought.
In a monthly report, OPEC said demand for its crude will average 29.58 million barrels per day (bpd) next year. OPEC pumped less oil in November than the average 2020 requirement, having in previous months supplied more.
The report retreats further from OPEC’s initial projection of a 2020 supply glut as output from rival producers such as U.S. shale has grown more slowly than expected. This will give a tailwind to efforts by OPEC and partners led by Russia to support the market next year.
OPEC kept its 2020 economic and oil demand growth forecasts steady and was more upbeat about the outlook.
“On the positive side, the global trade slowdown has likely bottomed out, and now the negative trend in industrial production seen in 2019 is expected to reverse in 2020,” the report said.
Oil prices were steady after the report’s release, trading near $64 a barrel, below the level some OPEC officials have said they favour.
The Organization of the Petroleum Exporting Countries, Russia and other producers, a group known as OPEC+, have since Jan. 1 implemented a deal to cut output by 1.2 million bpd to support the market.
At meetings last week, OPEC+ agreed to a further cut of 500,000 bpd from Jan. 1 2020.
The report showed OPEC production falling even before the new deal takes effect.
In November, OPEC output fell by 193,000 bpd to 29.55 million bpd, according to figures the group collects from secondary sources, as Saudi Arabia cut supply.
Saudi Arabia told OPEC it made an even bigger cut in supply of over 400,000 bpd last month. The kingdom had boosted production in October after attacks on its oil facilities in September briefly more than halved output.
The November production rate suggests there would be a 2020 deficit of 30,000 bpd if OPEC kept pumping the same amount and other factors remained equal, less than the 70,000 bpd surplus implied in November’s report and an excess of over 500,000 bpd seen in July.
OPEC and its partners have been limiting supply since 2017, helping to revive prices by clearing a glut that built up in 2014 to 2016. But higher prices have also boosted U.S. shale and other rival supplies.
In the report, OPEC said non-OPEC supply will grow by 2.17 million bpd in 2020, unchanged from the previous forecast but 270,000 less than initially thought in July as shale has not grown as quickly as first thought.
“In 2020, non-OPEC supply is expected to see a continued slowdown in growth on the back of decreased investment and lower drilling activities in U.S. tight oil,” OPEC said, using another term for shale.