OPEC on Thursday forecast world demand for its crude will decline next year as rivals pump more, pointing to the return of a surplus despite an OPEC-led pact to restrain supplies.
The drop in demand for OPEC crude highlights the sustained boost that OPEC’s policy to support oil prices by supply cuts is giving to U.S. shale and other rival supply. This potentially gives U.S. President Donald Trump more room to keep up sanctions on OPEC members Iran and Venezuela.
Giving its first 2020 forecasts in a monthly report, the Organization of the Petroleum Exporting Countries said the world would need 29.27 million barrels per day (bpd) of crude from its 14 members next year, down 1.34 million bpd from this year.
OPEC in the report also forecast that world oil demand would rise at the same pace as this year and that the world economy would expand at this year’s pace, despite slower growth in the United States and China, the top two oil consumers.
“The 2020 forecast assumes that no further downside risks materialize, particularly that trade-related issues do not escalate further,” OPEC said of the economic outlook.
“Brexit poses an additional risk, as does a continuation in the current slowdown in manufacturing activity.”
OPEC, Russia and other producers have since Jan. 1 implemented a deal to cut output by 1.2 million bpd. The alliance, known as OPEC+, last week renewed the pact until March 2020 to avoid a buildup of inventories that could hit prices.
Oil pared earlier gains after the report was released, although prices were still trading above $67 a barrel after three Iranian vessels tried to block a British ship in the Strait of Hormuz oil choke point.
Despite the supply cut, oil has tumbled from April’s 2019 peak above $75, pressured by concerns over the U.S.-China trade dispute and an economic slowdown.
OPEC also said oil inventories in developed economies rose in May, suggesting a trend that could raise concern over a possible oil glut.
Stocks in May exceeded the five-year average – a yardstick OPEC watches closely – by 25 million barrels.
OPEC said its oil output in June fell by 68,000 bpd to 29.83 million bpd as U.S. sanctions on Iran boosted the impact of the supply pact.
According to figures OPEC collects from secondary sources, supply from Iran posted the biggest decline, by 142,000 bpd, as Washington tightened the screws on Iranian exports.
Top exporter Saudi Arabia increased output by 126,000 bpd to 9.81 million bpd in June but continued to voluntarily pump less than the supply pact allows it to in order to bolster the market. Nigeria, seeking a higher OPEC quota, posted the group’s largest boost in output.
OPEC and its partners have been limiting supply since 2017, helping to get rid of a supply glut that built up in 2014-2016 when producers pumped at will, and revive prices.
The rally has prompted growth in shale and other rival supplies. OPEC expects non-OPEC supply to expand by 2.44 million bpd next year, far more than the expansion in world demand which OPEC forecast at 1.14 million bpd, the same as 2019.
“U.S. tight crude production is anticipated to continue to grow as new pipelines will allow more Permian crude to flow to the U.S. Gulf Coast export hub,” OPEC said, using another term for shale.
“More than 2.5 million bpd of new pipeline capacity in the Permian is expected to become operational by July 2020.”
The report added new projects in fellow non-OPEC producers Brazil, Norway and Australia will also add to supply next year.
With 2020 demand for OPEC crude expected to average 29.27 million bpd, OPEC’s report suggests there will be a 2020 supply surplus of over 500,000 bpd if OPEC keeps pumping at June’s rate and other things remain equal.