OPEC said on Tuesday that world demand for its oil would be higher than expected this year as supply growth from rivals including U.S. shale producers slows, pointing to a tighter market if the exporter group refrains from raising output.
But the Organization of the Petroleum Exporting Countries, in a monthly report, said its output fell in April. Top exporter Saudi Arabia cut output despite oil prices hitting a 2019 high above $75 a barrel and U.S. President Donald Trump urging action to lower prices.
Supply losses in OPEC members Iran and Venezuela, both under U.S. sanctions, have deepened the impact of an OPEC-led production-limiting deal. The so-called OPEC+ group of producers meets next month to review whether to maintain the pact beyond June.
Vienna-based OPEC trimmed its estimate of oil supply growth from outside the group in 2019 and said the rapid rise in production of U.S. tight oil, another term for shale, was moderating.
“Supply growth is likely to be slower than last year amid the expected weaker global economic growth,” OPEC said.
“U.S. tight oil production is increasingly faced with costly logistical constraints in terms of outtake capacity from landlocked production sites.”
OPEC, Russia and other non-member producers are reducing output by 1.2 million barrels per day (bpd) from Jan. 1 for six months. The producers meet on June 25-26 to decide whether to extend the pact.
OPEC+ returned to output cuts this year due to concern that an economic slowdown would produce a supply glut. But demand has weakened no further for now, as OPEC kept its estimate of global growth in oil use in 2019 steady at 1.21 million bpd.
However, in a development that may raise OPEC concern, the report said inventories in developed economies rose in March, after falling in February.
Stocks in March exceeded the five-year average – a yardstick OPEC watches closely – by 22.8 million barrels, more than in February.
The report suggests that if OPEC kept pumping at April’s rate it would undersupply the world market in 2019.
SUPPLY RESTRAINT
OPEC’s share of the agreed oil supply cut is 800,000 bpd and the report showed producers are cutting much more.
Overall, OPEC’s April output fell by just 3,000 bpd month-on-month to 30.031 million bpd. Iranian supply posted the biggest decline as the U.S. tightened the screw on Iranian exports through sanctions.
Top exporter Saudi Arabia made a further voluntary cut, helping to offset increases in Nigeria, Iraq and Libya.
The 11 OPEC members required to cut output achieved 150 per cent compliance in April with pledged curbs, according to a Reuters calculation, compared with 155 per cent initially reported in March.
OPEC estimates it needs to provide an average of 30.58 million bpd in 2019 to balance the market, a figure increased by 280,000 bpd month-on-month partly due to the lower non-OPEC supply outlook.
This suggests there will be a 2019 supply deficit of over 500,000 bpd if OPEC keeps pumping at April’s rate of just over 30 million bpd and other things remain equal. Last month’s report had indicated a smaller deficit.